The number of new home sales fell by 5.7 per cent in May, new figures released by the Housing Industry Association (HIA) on Tuesday revealed.
"The small pull back in sales in May is likely to reflect a plateauing of first home buyer activity combined with continued weakness in the trade-up and investor markets," the HIA said in the report.
The HIA also said the decline "could have been linked to negative speculation about the federal budget".
The May result was underpinned by a 6.8 per cent fall in detached home sales.
The number of unit sales rose by 6.1 per cent.
HIA senior economist Ben Phillips said the May report highlighted that it would take more than those entering the property market for the first time to support a recovery in home building activity.
"The vast majority of the housing recovery has been at the first home buyer end of the market," Phillips said in a statement.
"As that segment inevitably slows over the remainder of 2009, it's vitally important that the much larger trade-up and investor segments return to health."
The federal government increased the first home owner grant in October last year to $14,000 for established homes and $21,000 for new homes or for those who wished to build their own home.
The temporary boost was due to be scaled back to $10,500 and $14,000, respectively, after September 30.
Figures from federal housing minister Tanya Plibersek published last week showed 97,761 people had taken up the grant since it was introduced.
There were 19,607 grants handed out in May - the highest monthly result and up 4.6 per cent from the previous month - but the figures did not distinguish between grants handed out for the purchase of established dwellings and new properties.
Among the states, Western Australia recorded the largest drop in new home sales with a 13.5 per cent decline in May, the state's first monthly decline this year.
New home sales were down 9.9 per cent in New South Wales and 8.7 per cent in Victoria.
New home sales rose two per cent in Queensland - the state's fourth rise in the past five months - and were up 3.6 per cent in South Australia.
Meanwhile, a survey found house prices had risen four per cent so far in 2009, with the national median of $468,819 in May just $520 below the recent peak in February last year.
The RP Data and Rismark International national home value index report said house prices increased in every capital city except Perth over the first five months of 2009.
Rismark International managing director Christopher Joye said the steady rise in house prices had given builders and developers the confidence to hire staff and purchase materials to build new homes.
"It has also given existing owners the confidence that their largest investment has been a secure store of wealth while other asset-classes have been decimated," Joye said in a statement.
Source: AAP NewsWire