Construction of new homes in Australia has reached a record high. But at the same time, population growth has registered its weakest numbers in almost a decade.

The oversupply of new housing, supported by government policy to encourage new construction, and the possible weakening demand for homes is setting the stage for a situation where house prices may be set to decline.

According to the Australian Bureau of Statistics, an estimated 326,100 people will require around 142,000 new homes to reside in..

It is likely that population growth will be sustained at this level in the coming years, which means that 140,000 to 145,000 new houses will be required.

But by the end of 2016 alone, an estimated 185,000 to190,000 new homes will have been constructed, based on approved construction plans.

We may see house pricing easing in certain areas as a result, to compensate for the oversupply that exceeds demand.

At the same time, an abrupt decline in housing construction would cause concern to an already fragile economy that has to grapple with this slowdown.

Interestingly, despite this gloomy outlook for housing price growth, consumer confidence in the Australian real estate market has peaked to its highest since 2013.

Falling unemployment figures in July and buoyant housing markets were seen to boost the ANZ-Roy Morgan index of consumer confidence, which rose last week to its highest level since November 2013.

“Higher levels of confidence are also consistent with another week of solid (housing) auction clearance rates - particularly in Sydney and Melbourne,” said ANZ senior economist, Jo Masters.

“While good news on the labour and housing markets appear to have boosted confidence recently, the key for the broader economic outlook is whether higher confidence can translate into spending, particularly given high household debt.”