"After housing activity rose consecutively for over four years, its longest ever boom, we are now calling the top and think that housing activity has already peaked," UBS economists Scott Haslem, George Tharenou and Jim Xu wrote in a note to clients.

House price growth nationally is at a seven-year high of 13 per cent, but UBS said it expected growth to slow to 7 per cent this year and drop to between zero and 3 per cent growth in 2018, when higher interest rates and tighter mortgage lending rules weaken demand.

"We see a moderation ahead amid record supply and poor affordability, with the new buyer mortgage repayment share of income spiking to a decade high," UBS said.

However, prices would only correct in a sharp downturn - not a crash - because of population growth and the absence of any Reserve Bank rate hikes, UBS said.

The call comes as regulators try to cool the market by limiting risky lending, especially on investor and interest-only loans.

In the latest response by banks to regulatory pressure, Westpac on Monday hiked interest rates on fixed-rate, interest-only home loans, days after Commonwealth Bank raised fixed rates on Friday, targeting interest-only loans and property investor loans.

New home buyers are now paying 28 per cent of their incomes on mortgage repayments on average, the highest level since 2008 and well above the long-term average of 23 per cent, and UBS said a 100 basis point rise on record-low interest rates would push repayments to a tipping point where prices have historically fallen.

The number of dwellings being built would moderate from a record high of 232,000 in 2016 to 200,000 in 2017 and 180,000 in 2018, UBS said.

The supply of housing coming onto the market was driven entirely by apartments, the bank said, which are being built at about twice the rate as in 2010.

Again, that correction should not worsen to a slump provided the RBA does not hike interest rates, which remain the dominant driver of investment in housing, UBS said.

Auction activity improved last week after a weak showing over Easter, with 1732 houses going under the hammer, up from 493. But the clearance rate fell to 72.1 per cent from 73.9 per cent, according to CoreLogic.

The clearance rate and the number of dwellings brought to market were greater than on the same weekend last year, CoreLogic said.