Home building approvals have posted their strongest monthly gain in eight months, a sign the housing sector will be the main driver for the economy when mining investment fades.
Approvals for the construction of new homes rose 9.9 per cent across Australia in May, official figures show, better than the 3.2 per cent rise economists had been expecting.
Over the 12 months to May, building approvals were up 14.3 per cent.
CommSec economist Savanth Sebastian said the housing sector will be the main highlight for the Australian economy over the next 12 months.
"There's signs of consolidation but it's still strong in terms of new construction activity and that's the key," he said.
"You've got building approvals which are solid, new home sales easing off four-year highs but certainly the fact that construction loans remain relatively upbeat is a good sign."
He said the boost in housing construction will increase supply and keep housing prices from rising too fast.
"All this seems to point to rates on hold and even the potential that the RBA could deem another rate cut necessary if this trend continues."
Approvals for private sector houses rose 0.5 per cent in the month, and the 'other dwellings' category, which includes apartment blocks and townhouses, was up 27.2 per cent.
JP Morgan economist Ben Jarman said it was the first rise in building approvals in three months, but the overall trend for building approvals is up.
"I think the RBA (Reserve Bank of Australia) is pretty comfortable that housing is going to do fine," he said.
"The annual rates in building approvals have passed their peak but the levels are consistent with dwelling investment being one of the more positive contributors to growth this year and probably into next year."
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