The Housing Industry Association (HIA) said its survey of large builders showed sales of new homes dropped 5.3 percent in August, compared to July. Sales of detached homes fell 5.8 percent, while sales of multi-units eased 2.5 percent.

The decline comes despite interest rates cuts from the Reserve Bank of Australia (RBA) in both May and June.

The central bank resumed its easing this week with a quarter point cut to 3.25 percent, the lowest level in three years.

"A fresh round of interest rate cuts will help rebalance this situation, although financial institutions obviously need to play their role in cementing this outcome," said HIA chief economist, Harley Dale.

Australia's four largest banks have yet to announce cuts in their mortgage rates and any reductions are likely to be by less than the full quarter point.