Sales of new homes in Australia continued to fall, dropping by as much as 3.7 per cent for a third consecutive month in September in spite a prevailing regime of low interest rates.

September's decline was due to the decline of the detached housing market at 3.5 per cent, according to the Housing Industry Association (HIA), noting multi-unit sales alone plummeted by 4.2 per cent.

In terms of value, only 5,200 homes were sold in September.

The latest figures translate to a waning confidence in the housing sector, according to HIA chief economist Harley Dale.

"Interest rates have come down since November 2011 and there is a recognition that the home-buying environment has improved in 2012," he said. "However, households remain reticent to actually make a decision to buy.

"This situation is especially evident in the new home building sector where excessive taxation instills a bias against new housing relative to existing property."

He urged the RBA to make further rate cuts when it holds next week its November policy meeting.

"Interest rate cuts should help foster a recovery in new home sales in the December 2012 quarter, along with new home incentives for first time buyers in three states and a nascent recovery gathering legs in Western Australia," Dr Dale said.

"The Reserve Bank of Australia (RBA) needs to play its part by cutting rates again next Tuesday - a renewed easing of rates in October that is not followed up could add to household uncertainty and, perversely, further damage confidence."

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