Approvals for the construction of new homes fell in December but residential construction is still on the path to recovery.
Building approvals fell 2.9 per cent in December, weaker than economists' expectations of a 0.6 per cent fall. But over the year, approvals were up 21.8 per cent, the Australian Bureau of Statistics said on Monday.
JP Morgan economist Tom Kennedy said a large rise in September had seen subdued results in October, November and December but construction was still strengthening.
"What we are seeing at the moment is a little bit of payback from that big flow of approvals that we did see in September," Mr Kennedy said.
"The monthly data for December is pretty soft across the board, with declines in single family dwellings and also high density dwellings.
"But it's important to look at the long term, over six months or so, and when you do that, there clearly has been a pickup in building approvals in the back half of 2013.
"The data does suggest activity in the construction sector has moved higher."
Commonwealth Bank senior economist Michael Workman said interest rate cuts over the past two years are impacting on the housing sector.
"The current level of interest rates is extraordinarily low and they are doing what they usually do, which is stimulating housing lending, housing prices and construction."
"The data was weaker than expected but it still shows a very strong increase in construction activity is likely in 2014," he said.
Mr Workman doesn't expect the Reserve Bank of Australia to cut the cash rate in the foreseeable future, thanks to the strong housing sector, but there are concerns about recent weak employment growth.
However, he said that there seems to be a turn-around in business and consumer confidence and that should help the labour market later in the year.