ABS Housing Finance figures released this week fell in July by the most in five months, damaging hopes of any imminent recovery which had been spurred on after an improvement in June figures.

The number of loans for the construction or purchase of new homes fell 1.9 per cent in July, seasonally adjusted.

Australian home-building approvals declined in July by the most in almost a decade.

Housing Industry Association (HIA) Chief Economist, Dr Harley Dale said:

"We have seen weaker updates for all new housing leading indicators released for 2012/13 to date," said Harley Dale.

"The starting position for new home building is GFC-like levels, the negative implications of which are reverberating through not only the new home building sector, but parts of manufacturing and retail as well," Harley Dale said.

"We need to be seeing consistent evidence of improvement in leading indicators such as new home lending and local government building approvals, to provide some hope that conditions will lift sooner rather than later," said Dale.

"The evidence isn't there and that has to be a prominent concern for policy makers."

"In terms of total owner occupier lending, the moderate recovery in the first home buyer market continues, but is exaggerated because of the low base, and the trade-up buyer market appears to be losing momentum.

On the investment front, what was the barest of recoveries has petered out. At a time of considerable shortage in affordable rental accommodation it is concerning that new residential investment has effectively tracked sideways, at a historically low level, for over six months now," added Dale.

Peter Jones, Chief Economist at Master Builders Australia said the figures were disappointing given nascent signs of improvement in the past few months.

"The July figures failed to build on previous positive momentum and unless sentiment shifts, residential builders are in for more tough times as recovery looks likely to be many months away.

"Lack of confidence and 'flat to falling' house prices mean the four rate cuts over the past nine months have failed to boost household confidence, forestalling purchasing decisions.

"The industry needs the rate cuts to take hold and provide the spark for a recovery for the housing sector.

"If as suspected, the previous rate cuts have failed to take hold, the Reserve Bank needs to act," Jones concluded.

The total number of seasonally adjusted loans (net of refinancing) increased by 1.8 per cent in Western Australia and 7.8 per cent in the Northern Territory.

Total lending fell by 2.7 per cent in New South Wales and was down by 1.3 per cent in Victoria, 2.0 per cent in Queensland, 1.0 per cent in South Australia, 3.0 per cent in Tasmania, and 2.8 per cent in the Australian Capital Territory.