They said a couple and their three children, a three-year-old girl and 18-month-old twin girls, lived at the home but that they had not seen them in recent days.
A neighbour, who only wanted to be known as Alfie, said police arrived at the home on Sunday banging on back doors and jumping fences.
WA Police told news.com.au the man was in custody and assisting policy with their inquiries.
"The homicide squad now have teams of detectives on the ground, accompanied by specialist forensic police who are meticulously working their way through this crime scene".
When police entered, they discovered the bodies of two women and three young children.
Police say there are no on-going concerns for public safety as a result of this incident.
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While violent crime with multiple victims is rare in the country, this was the second major incident in Western Australia this year. "It is safe, we have grown up all our lives and this is just so sad and horrific".
"We're all in complete shock".
Police said a search was launched after an unnamed man in his 20s provided information to the police.
A distraught neighbour near the scene said she often saw children playing in the front yard of the house.
He said forensic teams were on the scene and investigators were trying to piece together a timeline of events.
"The WA Police Force will continue to apply our efforts to this matter as a priority, and the Homicide Squad will ensure a professional and meticulous investigation is undertaken", said a police statement.
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It is yet to be determined how long the bodies had been there, Mr Steel added.
"They were a ideal family. this is a attractive neighbourhood, it's quiet", Alfie said. "I'm deeply saddened by what's happened".
"It's always been so calm and peaceful". No charges had been laid by late last night.
The deaths of Katrina Miles, her parents Cynda and Peter Miles, who owned the property, and her four children has been described as Australia's worst mass shooting since the Port Arthur massacre.
The tragedy comes after a 19-year-old man was charged with murdering an eight-year-old boy, a 15-year-old girl and their mother at Ellenbrook in July.
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