SYDNEY, September 16 — The story begins with a number the housing industry had been dreading. New home sales across Australia fell sharply through the middle of 2026, and the Housing Industry Association now says the recovery that had been building at the start of the year has been interrupted.
In the three months to August, sales of new homes dropped 10.0 per cent in August alone, leaving them 19.3 per cent lower over the three months to August than the previous quarter and 7.7 per cent lower than at the same time the previous year, according to the HIA’s New Home Sales report, a monthly survey of the largest volume home builders in the country’s five largest states.
A broad-based retreat
The decline was not confined to one market. All five states included in the survey recorded a decline in sales over the three months to August. Victoria led the fall at 27.0 per cent, followed by Queensland at 20.2 per cent, New South Wales at 17.5 per cent, South Australia at 10.8 per cent and Western Australia at 8.2 per cent.
At its heart, the report points to two forces pressing on the market at once. HIA chief economist Mr Reardon attributed the weakening to the combined effect of the Federal Budget tax increases, which have weakened market confidence, and three interest rate increases, which have reduced household borrowing capacity and increased mortgage repayments.
Reardon said the new home market cannot absorb further interest rate increases on top of the tax increases announced in this year’s Federal Budget. He described the result as a tangible and significant deterioration in market conditions.
What comes next
He noted that falling established home prices and rising construction costs are outcomes of the rise in taxes and interest rates and are making new home projects increasingly difficult to finance. He added that it is not possible to isolate precisely how much of the deterioration is attributable to higher interest rates, increased taxation or broader economic uncertainty. Builders are also reporting weaker traffic through display sites, fewer enquiries and declining preliminary commitments, while cancellation rates are rising.
Reardon said a substantial volume of work was in the pipeline when these pressures emerged, meaning the sales deterioration will not be immediately evident in housing commencements and is unlikely to adversely impact commencements of new homes in 2026. But he warned that today’s new home sales are tomorrow’s housing commencements, so the decline in sales through the middle of 2026 will mean fewer homes commencing construction in 2027.
That slowdown will occur without a corresponding reduction in Australia’s underlying need for housing. Population growth, low unemployment and the existing shortage of homes continue to generate demand for additional supply. Reardon concluded that further interest rate increases would add another constraint to an already challenged market, that the full impact of the rising taxes and rates is still to unfold, and that this is not the time for another rate rise.
What to watch next is whether the Reserve Bank heeds that warning when it next meets, and whether the pipeline of work already underway is enough to keep builders busy into 2027.
