The slump in consumer confidence in March due to the concerns arising from the COVID-19 outbreak has resulted in a decline in new home sales, according to the latest market update from the Housing Industry Association (HIA).

Over the month, sales of new homes declined by 23.2%. Despite this sharp drop, new home sales for the quarter ending in March were just 0.9% lower than the same quarter in 2019. This indicates that the transactions were strong during the first two months of the year, only to be dragged by the sales in March.

"Prior to March, the housing market was gaining momentum and new home sales had been improving. Leading indicators including building approvals, house prices and housing finance data all showed that the market was starting the new decade strongly," said Tim Reardon, chief economist at HIA.

The decline was apparent across all states, with Western Australia witnessing the biggest decline at 31.6% and Victoria recording 16.9%.

New South Wales and Victoria reported lower quarterly sales in March, clocking declines of 1% and 0.1%, respectively. On the other hand, detached house sales remained slightly higher in Western Australia, Queensland, and South Australia than in the previous quarter.

Reardon said consumer confidence dictates Australians' intentions to purchase a home. Given the impacts of the COVID-19 outbreak on the economy, concerns about employment have surfaced, dragging consumer confidence.

"Consumer confidence, overseas migration and population growth are central to the outlook for the residential building industry. Until there is certainty about when the economy will be 'restarted', including a return of overseas students, it is difficult to forecast the magnitude of a decline in residential building activity," Reardon said.