“Construction is collapsing, but the supply of properties that haven’t sold is exploding like crazy,” University of Western Sydney finance professor Keen told MarketWatch, citing back-to-back months of weakening housing starts.

Home building activity fell 10.7% in October from the prior month, after slumping 14.2% in September, according to data released Thursday by the Australian Bureau of Statistics.

Meanwhile, housing starts were down about 30% from levels a year earlier, even as a boom continues in the mineral resources sector appears to be accelerating.

Keen said slowing mortgage-credit growth has been a factor in ending a long period of gains in the Australian housing market.

The sector now appears caught in a negative-feedback loop, where properties are lingering unsold for a longer period, spreading nervousness that could encourage other homeowners to exit the market, further adding to supply, Keen said.

The market is also losing demand from speculators no longer willing to bet that prices will rise, and from buyers having trouble securing mortgages, he said.

Keen cited data showing the number of properties available for sale were up about 30% from a year earlier, while home prices were down about 5% on a nationwide basis.

“We are seeing that overhang turn into a sharp decline for house prices, which will exaggerate the problem because there will be more sellers trying to off-load their properties on the market before the price falls,” Keen said.

Keen accurately foresaw the global financial crisis, but has had a spotted record in calling the Australian property market. He sold his own apartment in an inner-city suburb of Sydney in 2008, where prices have since continued to boom. And last year he lost a public bet with a Macquarie Group analyst over the direction of house prices.

The market, he said, is now on the cusp of a major correction, with prices to deflate at an accelerating rate, with a drop as sharp as 10% annualized possible in the next six months, before moderating.

“We’ve got the same syndrome you would have got in the U.S. in 2006 and 2007, but it’s seeing us a few years late, courtesy of the government’s manipulation of the market. ... It’s striking us in earnest now,” Keen said.

He said prices movements would vary depending on the city, but he wasn’t optimistic there would be any safe havens, saying his gloom was rooted in the size of debt used to finance house purchases rather than Australia’s total level of debt.

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