Australia’s residential property market could soon be in oversupply with construction at record levels despite falling new home sales.

Already, industry observers are calling the boom over, saying prices are flat or falling in all major markets except Sydney which is expected to also weaken soon.

New data from the Housing Industry Association shows new home sales slumped for a third straight month in November, driven by a sharp decline in apartment sales.

• These are the best places to buy property in 2016
• A slide in house prices will be good for the economy
• Apartment boom may be over in Sydney, Melb

The HIA’s data followed the release of Australia Bureau of Statistics figures on Wednesday showing new dwelling commencements reached a fresh high of more than 55,000 nationally in the September 2015 quarter, and surged more than 15 per cent in the year to September.

But the HIA said the latest new home sales data, sourced from Australia’s largest volume builders, signalled the property market was now at a turning point.

More houses than buyers 

“A confluence of factors is driving a decline in leading indicators of new home construction,” HIA chief economist Harley Dale said.

The lagged effect of slowing population growth, an up-tick in variable mortgage costs, over-reach on the part of APRA’s credit controls (aimed at reducing investor buying), and an easing in property price growth in Sydney and Melbourne are all in play, Mr Dale said.

“In a welcome sign for the short-term residential outlook, leading indicators such as HIA’s new home sales didn’t fall sharply in the second half of 2015,” Dr Dale added. “There is, however, a steeper descent apparent for the ‘multi-unit’ market compared to detached houses.”

HIA new homes sales fell by 2.7 per cent in November 2015, a result driven by a 15.1 per cent drop in ‘multi-unit’ sales.

Detached house demand is more resilient with sales increasing by 1.1 per cent due to a stronger November across the eastern seaboard. Over the three months to November last year, detached house sales fell by 4.1 per cent while the sale of multi-units dropped by 11.8 per cent.

In the month of November 2015, detached house sales increased in three out of the five mainland states. Detached house sales rose by 8 per cent in Queensland, 3.3 per cent in Victoria, and 0.7 per cent in NSW, but fell 1 per cent in South Australia and by 9 per cent in Western Australia.

“Wednesday’s update for new dwelling commencements revealed the highest quarterly (and annual) level on record in the September 2015 quarter,” Dr Dale said.

“We expect that commencements held up well in the December quarter last year and that they will remain at historically healthy levels in the first half of this year. Leading indicators such as HIA’s new home sales are consistent with this view.”

Seachange in the market

Kim Hawtrey, associate director with economic research firm BIS Shrapnel, said the latest HIA sales data read in conjunction with the ABS construction statistics signalled “a real change in the market”.

House prices are starting to flat line. Photo: Getty

But Dr Hawtrey said the strong pipeline of activity in construction would continue to support the housing market well into 2016.

“Housing prices are now flatlining, or falling, and there is a real sense that the steam is going out of the market,” he said.

“Sydney will be the last market to lose that steam, but it is certainly already happening in Melbourne, Brisbane, Perth and other markets. Price growth and new building activity is levelling off.”

No construction bust

“We see total dwelling commencements Australia-wide peaking this year, in 2015-16, and tapering back in 2016-17 from a very high level. But they will ease back to a level that’s still strong,” Dr Hawtrey said.