Interest rate hikes are seen to dampen building approvals in Australia.

There are many indicators that the housing market is already cooling, including weakening building approvals across Australia.

Citing the latest figures from the Australian Bureau of Statistics (ABS), Housing Industry Association (HIA) principal economist Tim Reardon said building approvals in July were 5.6% lower than last year.

Building approvals went down sharply in South Australia and Western Australia, declining by 26.5% and 14.7%, respectively. Victoria (-4.6%), Queensland (-6%), and New South Wales (-5.2%) also reported approval declines during the said month.

Also Read: What does population have to do with housing approvals?

Even Victoria's housing market, which had been the main driver of overall market sentiment, has started now showing signs of weakness in building approvals.

"With Victorian home approvals now showing signs of weakness we expect the national trend – of declining building approvals – will continue throughout 2018," Reardon said.

Reardon attributed this to the cooling housing market, which began to gradually decline last year.

“The market is cooling for a number of reasons including a slowdown in inward migration since July 2017, constraints on investor finance imposed by state and federal governments and falling house prices," he said, adding that finance has become difficult to access for home buyers.

He believes the tighter lending standards and the limited access to finance have contributed to the slowing of building approvals, which will accelerate should banks impose an increase in interest rates.

“Irrespective of all of these negative influences, the volume of approvals for new detached houses have been tracking around their strongest levels in 15 years," Reardon said.