Is Melbourne’s Property Market About to Turn? A Data-Driven Look at What’s Next (Ep.298)

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Yesterday, the Reserve Bank of Australia made its highly anticipated decision on interest rates.

And we’ve finally got it! A reduction by 25 basis points, bringing the cash rate down to 4.10%

After a prolonged period of higher interest rates, this long-awaited cut is expected to increase borrowing power, ease mortgage stress and boost market confidence.

When the RBA moves to cut or raise rates, it often marks the beginning of a new cycle which means that there are multiple rate calls, not just one.

A reduction in interest rates will spark life into some markets.

Investors are always on the lookout for well-priced markets to take advantage of.

In today’s podcast, we’re delving into the data points that suggest that Melbourne could be one of those markets

How have Melbourne’s median property values changed over the past few years, and what does this tell us about where the market is headed?

At the start of the pandemic in March 2020, Melbourne’s median dwelling value commanded a significant 37% premium over Brisbane’s.

Since then, Brisbane’s property values have grown at more than six times the rate of Melbourne’s.

In May 2024, Brisbane’s median property values for houses and units surpassed those of Melbourne for the first time since 2008.

Meanwhile, Perth and Adelaide are steadily closing the gap on Melbourne’s median values.

When you factor in all property types, Melbourne has fallen behind, but this is because Melbourne has more units than Brisbane and Adelaide, which drags down the ‘all dwellings’ median.

For houses, Melbourne could drop from perennially being the second or third most expensive city in Australia, to the sixth where it currently sits for ‘all dwellings’.

This is unprecedented.

This is even more stunning when you consider that Melbourne will soon become the most populated city in the country surpassing Sydney.

Melbourne homes are now 38% cheaper than Sydney’s based on current figures from CoreLogic and PropTrack as of January 2025.

The difference historically has only been 29%.

In dollar terms, this equates to a staggering $557,000 price gap between Melbourne and Sydney according to CoreLogic for the average house.

We also mentioned in our last week’s market update episode that Hobart was inching closer to Melbourne’s median. We did some digging and found that in 2015, Hobart’s median property price was 43.9% lower than Melbourne’s, but as of 2025, the gap has dramatically narrowed to just 14.8% – a rare moment in the market.

The question we must ask ourselves, are Melbourne’s medians likely to stay at current levels or revert to something close to historical norms and rise above Brisbane and Canberra, and close the gap on Sydney?

If we take a look at the median tables it tells a story:

Let’s discuss affordability. How does Melbourne compare to other cities in terms of price-to-income ratio?

Median home values are just one piece of the housing affordability puzzle— another crucial factor is the price to income ratio and relative affordability.

Housing affordability improves when income growth outstrips the growth in home values.

Melbourne has seen higher-than-average income growth, bolstering accessibility to housing whilst property values have fallen.

Between March 2022 (the last market peak) and June 2024, dwelling values in Melbourne fell by -4.2%, while incomes rose by an impressive 8.8% over the same period.

As a result, Melbourne’s dwelling value-to-income ratio dropped to 7.1 in June 2024, marking its lowest level in nearly four years.

In contrast, Brisbane and Adelaide have seen their dwelling value-to-income ratios climb to record highs, reaching 8.0 and 8.6, respectively.

Notably, this means that the price to income ratio for Melbournians is far superior than those living in Brisbane and Adelaide, and slightly better than Hobart, where the value to income ratio is just a tick above at 7.2.

Sydney has the worst ratio at 9.8.

These demographic shifts cause people to look to move to a new location or capital city to live for better priced properties and higher paying jobs, making Melbourne increasingly more attractive for those living interstate.

This is also reflected in intra state migration flows.

Melbourne’s population is growing rapidly. How does this factor into the property market?

The Federal Government’s Centre for Population predicts Melbourne will lead the nation as the fastest-growing city over the next decade, thanks to overseas migration, resulting in an annual growth rate of 1.7% for Melbourne.

With a current population of approximately 5,207,100 as of June 2023 (according to the ABS) this translates to an additional 88,520 people needing housing in Melbourne each year.

This sustained population growth will naturally place upward pressure on housing demand, further tightening supply in an already constrained market.

Meanwhile, Sydney has been experiencing a net loss in interstate migration, with the latest annual figures for March 2024 from the ABS revealing that 31,183 more people left New South Wales than moved into the state.

According to the Centre for Population, this trend is projected to persist over the next decade.

By 2032, projections indicate Melbourne’s population will surpass Sydney’s, positioning it as Australia’s largest city.

This surge in population is likely to exert upward pressure on housing prices, particularly if the pace of new housing supply lags behind growing demand.

Here’s how other capital cities compare over the next 10 years in expected population growth:

What role does borrowing capacity play in Melbourne’s potential rebound?

As interest rates begin to decline, borrowing capacity will increase, allowing buyers to access larger loans and compete for higher-priced properties.

Combined with Melbourne’s improving affordability and rising rental yields, this will place upward pressure on prices.

Additionally, Labor’s plans to ease HECS debt repayments—by recalibrating indexation to wage growth rather than inflation—will improve borrowing power for younger Australians, enabling many to enter the housing market sooner. We will see how this plays out in real terms with lenders.

Should the the Coalition seize power at the next election, their proposal to allow first-home buyers to use their superannuation for a home deposit would further stimulate demand, particularly in the entry-level segment of the market.

With these policy changes on the horizon, the combination of greater affordability, increased financial flexibility and renewed buyer confidence is likely to accelerate property price growth throughout 2025 and beyond as we see falls in interest rates.

What are the risks for Melbourne’s property Market?

State Debt & Economic Uncertainty – Victoria’s debt levels are projected to reach $188 billion by 2028, with some forecasts suggesting it could hit $247 billion. High government debt could lead to increased taxation or reduced spending on infrastructure and services.

Business Closures & Economic Slowdown – Victoria has seen the highest business closure rate in Australia, with 129,000 businesses shutting down in 2024—twice the national daily average. Net migration of businesses to other states like Queensland and Western Australia raises concerns about economic stability and job growth.

Land Tax & Investor Exodus – Victoria’s land tax increases have discouraged property investors, leading many to sell or invest in other states with more favorable tax policies. While some investors are returning, will this tax burden continue to hold the market back?

Housing Oversupply Concerns – Melbourne has a significantly higher proportion of apartments compared to Brisbane and Adelaide. A large supply of high-density housing has kept unit prices lower, raising questions about how well the market can absorb future developments.

Government & Policy Risks – With a state election in 2026, policy uncertainty could impact land tax, stamp duty, and housing regulations. Will a change in government improve conditions for investors and homeowners, or add new challenges?

Is now a good time for investors and homebuyers to consider Melbourne?

The data is building up for Melbourne to be in a sweet spot for investment. Rental yields are strong, affordability has improved, and population growth remains robust.

If you’re looking for a market that hasn’t yet experienced rapid price growth but has strong fundamentals, Melbourne is a prime candidate.

Lower interest rates will spur both homebuyers and investors to act—given the property market has been subdued for an extended period, especially in comparison to Perth, Adelaide and Brisbane.

The timing and scale of these anticipated interest rate cuts in 2025 could be the primary catalyst for a full-scale rebound.

Market experts expect three to four reductions in 2025 meaning interest rates could fall by another 0.50% to 0.75% this year.

Melbourne has lagged behind other cities for up to a decade now, and especially in recent years, but with changing conditions, now appears to be the right time to re-evaluate its potential. The fundamentals suggest that it won’t stay this affordable for long.

Gold Nuggets

Mike’s gold nugget: In a sea of positive data points, the sentiment remains the interesting one to follow. Mike feels this will become a more robust indicator of price growth.

Dave’s gold nugget: Dave maintains that 2026 is going to be the year for Melbourne! But he reminds listeners that they should make the right decisions based on what is right for their own personal economy.

Cate’s gold nugget: League ladders change all the time. There is no fixed order for performance of cities and history has shown us how this has alternated over the years.