Home prices are set for a gradual fall rather than a crash, as approvals for new homes are slowing, economists say.
Approvals for the construction of new homes fell 8.7 per cent in September, and were down 6.4 per cent in the past 12 months, Australian Bureau of Statistics figures show.
Private sector house approvals rose 2.3 per cent in September, while the 'other dwellings' category, which includes apartment blocks and townhouses, fell 16.3 per cent.
JP Morgan economist Henry St John said the figures indicate the widely speculated fall in home prices over the next three years as supply floods into the market will be gradual rather than abrupt.
He said overall building approvals were up 2.2 per cent in the three months to September quarter, from a 2.4 per cent fall the previous quarter, and over the same two periods annual house price growth cooled from 8.4 per cent to 6.8 per cent.
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"This suggests that some adjustment in the housing market is occurring on both a nominal and real basis, and is suggestive of broader housing market stabilisation," Mr St John said.
"Moreover, this reinforces our argument that the decline in residential investment will be a gradual story as we move in to 2017, rather than seeing any harsh nominal adjustment."
Citi economists said an apartment oversupply was already apparent in several key postcodes in Melbourne and Brisbane, with re-sales only being achieved at lower prices.
"However, underlying housing demand appears sufficiently strong to prevent contagion across the broader housing market," they said.
UBS economists noted the value of non-residential building approvals had more than doubled to $5.54 billion in September, after falling 24 per cent to $2.53 billion in August.
That flags a turnaround in non-mining investment, driven particularly by commercial property, they said.
"Today's sharp lift in non-residential approvals led by commercial property (particularly offices) adds to recent signs that past year's weakness in non-mining capex is fading, an additional potential source of growth over the next couple of years," the UBS economists said.
