New dwelling numbers are up, but migration has dropped off and affordability is faltering, a new report indicates.

The PRDNationwide Quarterly Economic and Property Report has shown a 2.2% increase in dwelling starts for the quarter. However, dwelling starts remain 17.5% down compared to last year. PRDNationwide research director Aaron Maskrey said business confidence also took a hit over the quarter.

 "Although Australia has proved to be insulated and economically robust from the troubles overseas, there is no doubt that the volatility has affected sentiment and confidence over the year," Maskrey commented.

In spite of faltering confidence, housing finance was up 3.5% on last year. Affordability, meanwhile, has continued to decline.

"On average, Australian households now need approximately 34.6% of the family income to service their home loan," Maskrey said.

Maskrey said house prices had nevertheless softened over the year, but predicted that prices could begin to see recovery in late 2012.