HOUSING looks set for a subdued start to the year with builders dashing hopes that the sector will fill the hole left when the mining industry comes off the boil and with prospective home buyers cautious in the face of rising unemployment.
A national building and construction survey released on Monday shows industry conditions have worsened since 2011, despite a run of interest rate cuts.
The survey of more than 400 builders and contractors suggests 2013 is unlikely to be the year when the industry lifts from its current downturn.
"Interest rate cuts over the past year appear to have failed to boost the confidence of new home buyers," Master Builders Australia's chief economist, Peter Jones, said.
He said the Reserve Bank had pointed to the building industry to help boost the non-mining sectors of the economy. But the survey suggested more stimulus in the form of first home owner grants and interest rate cuts was needed to achieve that goal.
"The most disturbing finding from this quarter's survey is that builders' profits are declining as the pipeline of work dwindles," he said.
The survey's index that measures builders' level of business activity fell again in the December quarter from 47.4 to 45.2, below the neutral 50 mark that indicates satisfactory levels.
It continues a two-year decline that puts the index below levels recorded during the 2008 global financial crisis.
And while the building industry struggles, fewer people believe house prices will rise this year, although they still think it's a good time to buy a home, another survey shows.
Just 26 per cent of consumers believe house prices will go up this year, a drop of 8 per cent from the last Westpac-Melbourne Institute Consumer House Price Expectations survey in October.
"Consumers recognise it's a good time to buy a house but they appear to be cautious on two fronts," Merrill Lynch economist Saul Eslake said.
"One, they're still cautious about taking on additional debt, and secondly, they may be apprehensive . . . that houses could become even more affordable," Mr Eslake said.
Rising unemployment was also weighing on people's minds, he said.
"It's quite possible the unemployment rate will get to 6 per cent by mid-year. All of this argues for a pretty subdued start to the first half of the year both for activity and prices," he said.
The sober outlook follows figures released last week showing weak housing finance approvals in November suggesting activity will remain soft.
Despite last year's interest rate cuts, the proportion of first home buyers looking to enter the market fell to 15.9 per cent, down from heady heights of 34.1 per cent when the market peaked in 2009.
"These approvals data are further evidence of interest rate cuts to date not having as great a stimulatory effect on households as they have had over the past decade and suggests that the RBA will have to cut rates further if it is to get the desired response," a Merrill Lynch report suggests.