Housing starts up as rate cuts bite LOW interest rates have prompted a surge in the the level of new home approvals, sparking the long-awaited rebound in home building and house prices. But a surprise fall in company profits in the three months to June means tomorrow's national accounts figures will show economic growth remains sluggish, leaving the Reserve Bank tipped to cut interest rates to a record low before Christmas. Monthly approvals of new homes surged by almost 11 per cent to 14,300 in the month to July, more than making up for falls across the previous two months. New units, especially in Melbourne, accounted for the bulk of the rise, but private-sector houses, figures for which are less volatile between months, also rose and are up 12 per cent on a year ago. Commonwealth Bank economist Michael Workman said: "Melbourne's apartment market is most probably headed for, or already in, oversupply." He said approval levels were between 13 per cent and 48 per cent higher for the year in Australia's four most populous states. "Lower mortgage rates over the past two years are producing a pick-up in existing dwelling values and also a moderate rise in new construction activity," Mr Workman said. Household wealth will be another beneficiary. Capital city house prices edged up 0.5 per cent last month, bringing overall gains to 7 per cent since prices hit a trough in May last year. Brisbane house prices rose 1.5 per cent across the month, the strongest rise nationally, to a median price of $429,000, compared with a capital city median house price of $490,000. Tim Lawless, spokesman for RP Data, which conducts the survey, said: "The 0.5 per cent gain over the month of August is a much more sustainable rate of growth and will be a welcome turn of events for policy-makers." Australian Bureau of Statistics figures show company profits defied expectations and fell almost 1 per cent across the three months to the end of June, thanks mainly to manufacturing, retailing and hospitality dragging down profits. This offset better results for mining, media and telecommunications companies. JPMorgan economist Tom Kennedy said while the better home-approval numbers were encouraging, the weaker company results suggested economic growth would remain weak. "They won't be enough to stop the Reserve Bank from cutting rates further in November, due to the expected rise in unemployment beyond 5.7 per cent and sub-trend economic growth," he said. The Reserve Bank board, which cut interest rates to a record low of 2.5 per cent last month to try to resurrect non-mining activity, is widely tipped to keep interest rates on hold at its meeting today but financial markets are pricing in a further cut in interest rates this year. The relentless contraction in manufacturing slowed little last month, with the Australian Industry Group monthly activity index rising 4.4 points to 46.4 between July and August. Nevertheless, it was the 26th consecutive month below 50, which indicates a contraction. AI Group chief executive Innes Willox said: "The fall in the value of the dollar is beginning to be felt, with some businesses reporting improved competitiveness against imports." The Australian dollar has slumped by 15 per cent since April, apparently settling to a new "normal" trading range a little below US90c. The Reserve Bank expects the currency to fall further in coming months, along with the prices of iron ore and coal, Australia's two biggest exports.