Australia could face a sharp decline in home construction that may lead to an easing in prices, a new report says.

The latest Housing Industry Association’s (HIA) new home sales report, which surveys Australia’s major builders, says there is a strong risk of a slump in new home construction in 2016/17.

HIA chief economist Harley Dale said easing population growth coupled with higher variable mortgage costs and uncertainty around construction commencements could lead to a sharp decline in new home building.

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He said, adding to this picture, is the fact there had been four consecutive years of healthy demand for new homes.

“Given that a peak in new housing tends to be immediately followed by a sharp decline, there is a risk of a sharp decline in 2016/17,” Dr Dale said.

“The growth in prices will slow but we don’t anticipate any hefty falls in prices.”

He said detached house sales declined in four out of the five mainland states during October.

Detached house sales dropped 9.3 per cent in Victoria, 5.4 per cent in Western Australia, 0.9 per cent in Queensland and 0.8 per cent in New South Wales, while detached house sales increased by 2.6 per cent in South Australia.