Prospective home builders have been warned that because of the high degree of volatility and risk it is more important than ever to carry out their ''due diligence'' when selecting a contractor and to take ownership of their build.

''Building insolvency has spiked since last year. From July last year to now it has been very busy. I have been involved with six other builders [a total of eight facing insolvency] in the last six months,'' a senior administrator with RSM Bird Cameron, Frank Lo Pilato, said.

ACT building starts for this year's March quarter were down by 50.9 per cent or 41.2 per cent on a seasonally adjusted basis according to the Australian Bureau of Statistics and the Housing Industry Association.

These are the contracts that would now be about mid-term.

Master Builders ACT executive director John Miller said times in the industry were as tough as they had ever been.

''There has obviously been an increase in the number of builders who are closing. There are a lot of wind-ups at the moment. Many of our members report that while they are still working they are experiencing a reduced level of activity.''

The dramatic turnaround comes just five months after Canberra City and Kingston claimed places one and six respectively on a Housing Industry Association list of national residential development hot spots for the 2010-11 financial year.

An experienced insolvency practitioner, who did not wish to be named, said Canberra's building sector was experiencing ''evolution in action''.

''There has definitely been a spike in the number of building companies going down in the last two or three months,'' he said.

''Many of the people who have gone haven't been around long. The industry is going through a bit of a clean-out. A lot of people who came in during the good times don't know how to manage when it gets tough.''

Mr Miller agreed there was a direct link between the business closures and the evaporation of buyer demand.

''There is no question we have gone into difficult times; uncertain times. The market is right down on where it was pre-2008,'' he said.

''Confidence has been extracted from the market and this is reflected in the level of building activity.

''There has been a lot of multi-unit development and there is an argument we have reached the point of oversupply [with this].''

A wide range of factors, including a land drought, had all played a part.

''There is [still] a [strong] market for entry level, stand-alone housing priced below $400,000 but you have to have the land to do that,'' he said. ''The Land Development Authority was supposed to have 5000 blocks on the market by January; the actual figure was less than 3000.

''History tells us the good times will come back; the question is when? Also, when you consider the growth that did occur in the ACT in the first part of the century you have to ask if we will ever see that again. Canberra has had two golden periods - the first in the 1970s and the second from 2000 to 2010.

''Most of our members are good people and the vast majority of builders want to do the right thing by their customers.''

Mr Miller said it would be silly to claim there weren't dodgy builders out there however and urged people to carry out their due diligence.