Surge in demand for new homes as construction cost pressures ease
Construction activity is strongest in the multi-residential sector in Victoria
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Demand for new homes is surging after a lacklustre year – and one property type is proving particularly popular among would-be buyers.
The latest New Homes Report from research firm PropTrack shows a 16 per cent increase year-on-year in search enquiries for new developments on realestate.com.au in July.
Boutique luxury apartments are especially in-demand, data shows. Enquiries for unit projects in inner Melbourne are the highest in the country.
The Victorian capital accounts for 34 per cent of all current residential construction projects in the country, with most underway in the inner-city.
Enquiries are the second highest on the Gold Coast, home to nine per cent of all current apartment developments.
Adelaide’s central and Hills regions have the most enquiries per development, but the number of projects underway in the city are particularly low, meaning more would-be buyers for fewer listings.
Analysis of demand shows premium unit complexes with rooftop swimming pools, wine rooms and gums are popular.
In July, Elysian Residences in Sherwood in Brisbane’s inner-south saw the most enquiries, followed closely by Murcia in Wollongabba in the inner-city.
The Walmer project in Melbourne’s Abbotsford came in third for the most enquiries sent by property seekers on realestate.com.au.
The New Homes Report also reveals the pace of building cost increases has slowed over the past year, with prices stabilising as supply chain issues improve.
Input prices rose by 0.6 per cent in the June quarter, which is the lowest increase in 18 months, Australian Bureau of Statistics data shows.
The cost of certain essential building materials, like concrete and plumbing products, has risen. However, the extent of those increases has been offset considerably by a slump in steel prices.
It marks good news for the construction sector, which has struggled through a tough period of time.
PropTrack senior data analyst Karen Dellow said the development of new dwellings slowed significantly over the past few years.
“The pandemic caused supply chain issues, increasing the price of essential building materials, which increased building costs, while labour shortages have also been a growing problem,” Ms Dellow said.
Frequent construction site shutdowns during Covid-19 stalled work and slowed down new home completions, she added.
“As a result, the higher cost of new properties led to decreased demand, compared to its peak in September 2021, when the government’s HomeBuilder Grant drove many property seekers to build houses to take advantage of the government subsidy.
“The combination of labour shortages and increasing prices has led to a backlog of work impacting the approval and commencement of future developments.”
However, ABS data shows easing construction costs might be helping to get work out of planning phases and into production.
There was a 14 per cent increase in new commencements in the March quarter, the latest figures reveal, totalling 46,546 dwellings. That has been driven by a whopping 57 per cent increase in apartment and townhouse commencements.
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The typically busy spring season for the housing market was a dud, and the summer isn’t looking much brighter.
Housing services companies like Zillow Group and Rocket RKT +3.78% were loud and clear last week on earnings calls: Rocket CEO Varun Krishna called the quarter through June “one of the toughest spring housing markets in years.”
Jeremy Hofmann, Zillow’s chief financial officer, said on a conference call that the company predicted earlier this year that the market for mortgages would be flat. “We actually now think it’s going to be down low-to-mid-single digits,” he said.
The rest of 2026 will remain challenging for mortgage origination volume, says KBW analyst Bose George. The question now is what happens in 2027. “If mortgage rates remain [around] 6.75%, I think that’s going to be challenging even for next year,” he says.
But what’s bad news for mortgage companies could be a positive for bargain hunters. Buyers can expect prices to grow more slowly—or mildly decline—with less competition as long as mortgage rates remain unpredictable.
Mortgage rates at the beginning of the year were solidly below year-ago levels, notes Zillow senior economist Kara Ng. But they surpassed last year’s levels recently, she adds, referencing Freddie Mac’s weekly survey of 30-year fixed mortgage rates. Last week’s reading, at 6.69%, was higher than year-ago levels for the first time in 2026.
“From the affordability point of view, it’s going to get more challenging in the second half of the year,” she says. “And when affordability gets more challenging, that impacts sales and home price appreciation.”
Mortgage application data tracked by the Mortgage Bankers Association has cooled since the beginning of the year. The trade group expects that the number of mortgage originations in the remaining two quarters will lag behind last year’s levels, after exceeding 2025 levels in the first half.
Rocket’s early-stage data—which the company told Barron’s it derives from its brokerage Redfin, demand for its mortgage products, and signs in its servicing portfolio that a homeowner is preparing to refinance or move—“leads us to expect the third quarter mortgage market to be smaller than the second,” Chief Financial Officer Brian Brown, said on the company’s call. He added that such an occurrence is “something the industry has not seen since 2022.”
Prices will be about flat nationally, Ng says. Zillow’s most recent forecast, which shows how values are expected to change in the year ending June 2027, show them dropping in roughly half of the 100 largest U.S. metros for which data is available.
Buyers aren’t rushing in at a time when mortgage costs are rising and unpredictable. But those with the right combination of patience and cash could stand to benefit. “If you are financially qualified to buy a starter home, you are facing less competition and you’re more likely to get a price cut,” Ng says.
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