Momentum carried into 2026 despite inflation pressures

Momentum in new home demand continued into 2026, with January enquiry and lot sales activity stronger than the same period in 2025. This resilience came despite monthly inflation running between 3.4-3.8% since September, increasing the prospect of an interest rate rise.

The impact of the February rate rise

In response, the Reserve Bank of Australia (RBA) raised the cash rate by 25 basis points in February, partially reversing last year’s easing trend. Early effects have been modest. Borrowing capacity is estimated to have fallen by 2-3%, coinciding with a slight reduction in enquiries during February. Some moderation in confidence is also evident in the Westpac-Melbourne Institute consumer sentiment report, where the time to buy a dwelling index fell.

Interest rate trajectory remains biased to the upside

The trajectory for interest rates remains biased to the upside, with inflation expected to return gradually to the 2-3% target range. While higher rates may continue to temper sentiment, the new home market is well positioned to absorb affordability pressures. The premium for new lots over similarly located established houses has narrowed. Melbourne’s median house price increased 8.4% in 2025, compared with a 1.3% decline in median lot prices, supporting the relative value of new homes.

Product mix is reinforcing accessibility

Product mix is also reinforcing accessibility. Townhomes and small lot housing code products* are increasingly incorporated into metropolitan masterplans, providing more affordable options while aligning supply with demand. Peri-urban and regional growth areas remain viable alternatives for buyers seeking new homes outside metropolitan corridors.

Incentives continue to support first home buyers

Additional support comes from developer rebates, government grants, and low deposit or help to buy schemes. Early 2026 RPM Buyer Surveys highlight the impact of these incentives, with 25-34 year olds — representing first home buyers most sensitive to interest rate changes — forming the largest cohort of owner occupier purchasers.

New home market enters 2026 with solid underlying demand

Overall, despite emerging headwinds from inflation and rising rates, the new home market has entered 2026 with solid underlying demand. Affordability measures, diversified product offerings, and targeted incentives continue to attract first home buyers and owner occupiers. This positions the new home market to maintain steady lot sales and enquiry through the first half of the year, even as the broader economic environment remains cautious.

*Lots smaller than 300sqm.

This article references findings from our Q4 2025 Victorian Greenfield Market Update.