It wasn't a surprise that consumer sentiment fell in the latest survey from Westpac and the Melbourne Institute, nor was it a surprise that housing construction finished 2012 on a weak note.

After all, new home starts and lending has been weak now for more than a year, while consumer confidence bounces around with every bit of media hype on bank home loan rates.

So the 5 point fall in the Westpac/Melbourne Institute Consumer Sentiment Index to 96.1 index points in March, from 101.1 points in February, is understandable.

Westpac chief economist Bill Evans said the index was now back below its October 2011 level.

That was before the RBA cut the official interest rate by 0.25% in November and, by the same amount in December.

The RBA has kept the cash rate steady at 4.25% since a move Mr Evans (who wants rates to fall) said the rate hold had hurt consumer confidence.

"Sensitivity to interest rates has, clearly, been one factor responsible for this weak print," he said yesterday in a statement.

"With the two previous rate cuts, in November and December, being passed on in full by the banks, it is reasonable to assume that many borrowers expected a further cut in the mortgage rate of 0.25 per cent.

"Instead, mortgage rates were actually increased in the following week with banks raising mortgage rates by an average of 0.10 per cent.

"It is likely that this reversal has impacted confidence." Mr Evans said.

Meanwhile dwelling starts fell 6.9% in the December quarter of last year, after a revised 5.8% drop in the third quarter.

With housing finance lower and approvals weak and volatile (especially for other dwellings such as home units), it's no wonder that housing starts have fallen for the past nine months.

New private sector houses dropped 2.7% in the quarter, while new private sector residential units sank 13.9%, seasonally adjusted, the ABS said yesterday.

For the quarter, residential starts totalled 33,653 nationwide while down 13% from a year earlier.

The December quarter decline was the third consecutive quarterly fall and the largest quarterly fall for 15 months.

For all of 2011, there were 148,100 dwelling starts around Australia, down almost 13% from 2010, but an improvement on the 138,500 tally for 2009.

New home starts rose by 0.6% in NSW in the December quarter, better than the 1.6% in the three months to September.

Victoria's decline slowed to a 7.3% fall in the December quarter, from that sharp 14.2% plunge in the September quarter.

Queensland saw dwelling starts slump almost 18% in the quarter, in a sharp turnaround from the September quarter when they rose 9.1%.

Western Australia's decline slowed to 3.3% in the December quarter from a 6% fall in the September quarter.

The Australian Capital Territory's saw a big fall in both quarters, while Tasmania saw a rise in the December quarter after a big fall in the three months to September.

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