Economists at investment bank UBS are increasingly confident a "correction" is taking place in residential construction, led by a slowdown in the apartment sector. But they argue house prices are set to grow more slowly, rather than drop, due to very low interest rates and growth in population.

Scott Haslem and George Tharenou cut their forecasts for dwelling commencements for this year and next in a report to clients last week, also arguing house price growth had been "unsustainable".

After "calling the top" in housing activity in April, the economists said they had "increased confidence that a correction is unfolding" in building activity. They noted official figures that last week showed a 19 per cent year-on-year slump in dwelling unit commencements in the March quarter.

This was the largest fall since the global financial crisis, they said, and building approvals had also fallen 20 per cent in May, after a sharp fall in approvals for high-rise units.