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Melbourne's property market is experiencing a dynamic period marked by modest price growth, tight rental conditions, and renewed buyer confidence following recent interest rate cuts.
As of September 2025, the market shows resilience despite affordability challenges, with strong population growth driving demand while housing supply struggles to keep pace. Infrastructure investments and favorable borrowing conditions are creating opportunities across different suburbs and property types.
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Melbourne's property market shows modest growth with house prices up 1.0% and unit prices down 0.8% over the past year, while rental conditions remain extremely tight.
Population growth of 142,600 people and three interest rate cuts in 2025 are driving renewed buyer activity, with economists forecasting 3-8% price growth for 2025-2026.
| Market Indicator | Current Status (Sep 2025) | 12-Month Change |
|---|---|---|
| Median House Price | $952,000 | +1.0% |
| Median Unit Price | $621,000 | -0.8% |
| Auction Clearance Rate | 70-76% | Increased from 2024 |
| Rental Vacancy Rate | 1.3-1.8% | Lowest in years |
| Days on Market | 37 days | +2 days |
| Population Growth | +142,600 people | 2.7% annual growth |
| Interest Rate (Cash) | 3.60% | -0.75 percentage points |
How have Melbourne property prices been trending over the past 12 months?
Melbourne property prices have experienced modest growth over the past 12 months, with houses performing better than units.
House values increased by 1.0% to reach a median price of approximately $952,000, while unit values declined by 0.8% to settle around $621,000. This divergence reflects stronger demand for houses, particularly in outer suburban areas where affordability remains more attractive for families.
The growth trajectory has been steady rather than dramatic, with the market showing resilience despite ongoing affordability pressures. Price movements have been supported by population growth and infrastructure development, but constrained by limited housing supply and elevated interest rates through most of the period.
As of September 2025, the market is showing signs of renewed momentum following three interest rate cuts earlier in the year, which have improved buyer confidence and borrowing capacity.
This modest growth represents a stabilization after the more volatile periods of previous years, positioning Melbourne as a steady performer in the national property landscape.
What's the current auction clearance rate in Melbourne, and how has it changed recently?
Melbourne's auction clearance rate is currently running at 70-76% as of August 2025, demonstrating robust buyer demand and market confidence.
This represents a notable improvement from 2024 levels, with clearance rates trending upward in recent weeks. The current rate sits above the national average for capital cities, indicating Melbourne's relative strength in the auction market.
The improvement in clearance rates coincides with the Reserve Bank's interest rate cuts and increased buyer activity following improved affordability conditions. Higher clearance rates typically signal strong competition among buyers and can indicate upward pressure on prices.
The sustained high clearance rate suggests that quality properties are attracting multiple bidders, particularly in well-located suburbs with good infrastructure connections.
This auction performance supports expectations for continued price growth as buyer competition remains intense across most segments of the Melbourne market.
How many properties are currently on the market compared to this time last year?
Property listings in Melbourne are significantly lower than last year, with total listings down 10-15% year-over-year as of September 2025.
New listings specifically have fallen by approximately 11%, indicating that fewer sellers are choosing to enter the market. This reduction in supply has contributed to the competitive conditions and supported price stability.
Despite fewer properties being listed, sales volumes actually increased by 8% over the year, demonstrating strong buyer demand absorbing available stock. The combination of reduced supply and increased sales activity has created a seller's market in many suburbs.
This supply constraint is partly due to homeowners holding onto properties in anticipation of better conditions, and construction delays affecting new housing completions.
The tight stock levels are expected to continue supporting price growth as demand outstrips available inventory across most Melbourne suburbs.
What's the average days on market for homes in different parts of Melbourne?
The median days on market for Melbourne properties is currently 37 days, representing a slight increase from 35 days in the previous year.
| Melbourne Region | Average Days on Market | Market Characteristics |
|---|---|---|
| Inner Melbourne (CBD, Carlton, South Yarra) | 28-32 days | High demand, premium locations |
| Middle Ring (Hawthorn, Richmond, Brunswick) | 33-38 days | Established suburbs, strong infrastructure |
| Outer Eastern (Ringwood, Croydon, Lilydale) | 38-45 days | Family-oriented, value-conscious buyers |
| Western Growth (Tarneit, Point Cook, Werribee) | 35-42 days | New developments, first-home buyers |
| Northern Corridors (Craigieburn, Epping, Whittlesea) | 40-48 days | Growth areas, infrastructure development |
| Bayside/Peninsula (Brighton, Frankston, Mornington) | 35-50 days | Lifestyle properties, varied price points |
How are rental vacancy rates and rental yields shifting across Melbourne suburbs?
Melbourne's rental market remains extremely tight with citywide vacancy rates sitting at just 1.3-1.8%, among the lowest levels in years.
This historically low vacancy rate is creating significant upward pressure on rents, with median weekly rents now at $575 for both houses and units. Annual rental growth stands at approximately 1-1.7%, which is moderate compared to other capital cities but still represents real cost increases for tenants.
Rental yields vary significantly across Melbourne, with apartments in Carlton and the CBD delivering strong yields of 6.6-7.8%. Houses in outer suburbs like Meadow Heights, Pakenham, and Broadmeadows are generating yields of 4.4-4.5%, while houses in the outer north and west typically yield around 4.6-4.9%.
The tight rental conditions reflect both strong population growth and insufficient new housing supply, particularly in the apartment sector where new completions are at decade lows.
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What's the pipeline of new housing supply, including apartments and houses, coming onto the market?
Melbourne's new housing supply pipeline is severely constrained, with apartment completions at decade lows of approximately 400 units in the first half of 2025.
The supply shortage is contributing directly to the tight rental market and supporting price growth. Build-to-rent schemes and other development projects are adding some supply, but the pace of new construction is insufficient to meet demand from rapid population growth.
The national Housing Accord supply target is likely to fall short by over 250,000 homes over five years, with construction bottlenecks and slow approval processes hampering development. Melbourne faces particular challenges in apartment construction due to financing difficulties and regulatory constraints.
New house construction is also below historical norms, with developers citing high construction costs, labor shortages, and lengthy approval processes as key constraints. This supply shortage is most acute in affordable segments of the market.
The limited supply pipeline suggests continued upward pressure on both purchase prices and rents as demand continues to outstrip new housing availability.
How is population growth, especially migration into Melbourne, influencing housing demand?
Melbourne added at least 142,600 people in the past year, representing 2.7% annual growth and making it the fastest-growing capital city in Australia.
Migration is the primary driver of this population surge, with both international and interstate migration contributing significantly. Western suburbs including Tarneit, Craigieburn, and Point Cook have become major population hotspots due to their relative affordability and new housing developments.
This rapid population growth is intensifying housing demand across all segments, from first-home buyers to rental accommodation. The surge is creating particular pressure in affordable outer suburbs where new migrants and young families are concentrated.
The combination of strong population growth and constrained housing supply has created a fundamental demand-supply imbalance that is driving rental competition and supporting price resilience across Melbourne's property market.
Population projections suggest continued strong growth, meaning housing demand pressure is likely to persist unless new supply dramatically increases.
What are interest rate forecasts and how are they likely to affect Melbourne buyers' borrowing power?
The Reserve Bank has cut interest rates three times in 2025, bringing the cash rate down to approximately 3.60% as of September 2025.
These rate cuts have already improved buyer confidence and borrowing power, contributing to increased sales volumes and higher auction clearance rates. Additional modest cuts are possible but expected to be limited as the RBA balances economic conditions.
The improved borrowing capacity has expanded buyer budgets, allowing purchasers to compete for properties that were previously beyond their financial reach. This has contributed to renewed buyer activity across most Melbourne suburbs.
Major banks are forecasting continued low interest rates through 2025-2026, which should maintain favorable borrowing conditions for property purchases. However, banks remain cautious about lending standards despite lower rates.
The combination of lower rates and improved buyer confidence is expected to support continued demand growth, particularly as more buyers re-enter the market with enhanced borrowing capacity.
What suburbs or property types in Melbourne are seeing the strongest growth versus stagnation?
Several Melbourne suburbs are experiencing strong capital growth, with Montrose leading at 7.7% price appreciation over the past year.
- Strongest Growth Areas: Montrose (+7.7%), Lyndhurst, Somerville, Frankston North, and Carrum Downs (4-7% house price growth)
- High-Yield Investment Suburbs: Carlton and CBD for apartments (7-8% yields), Meadow Heights, Pakenham, Broadmeadows for houses (4.4-4.5% yields)
- Infrastructure-Driven Growth: Suburbs along Suburban Rail Loop and Metro Tunnel corridors benefiting from improved connectivity
- Outer Growth Corridors: Western suburbs like Tarneit and Point Cook experiencing rapid population growth and development
- Established Resilience: Inner suburbs maintaining strong demand due to lifestyle factors and proximity to employment centers
How are infrastructure projects and government housing policies impacting demand and supply?
Major infrastructure projects including the Suburban Rail Loop and Metro Tunnel are significantly boosting property demand in well-connected growth corridors.
These transport investments are improving connectivity between outer suburbs and employment centers, making previously less desirable areas more attractive to buyers and renters. Suburbs along these transport corridors are experiencing accelerated price growth and development activity.
Federal housing policies including easier homebuyer schemes, shared-equity programs, and social housing targets are stimulating both demand and supply-side activity. However, construction constraints and slow approval processes are limiting the effectiveness of supply-focused policies.
Government initiatives like inclusionary zoning and incentives for new development remain key medium-term policy targets, though their impact is constrained by industry capacity limitations.
The combination of infrastructure investment and housing policy support is creating a more favorable environment for property investment, particularly in growth corridors with improved transport links.
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What are economists and major banks forecasting for Melbourne's property prices in the next 1–3 years?
Major banks are forecasting property price growth of up to 8% for Melbourne in 2026, with continued upward pressure expected throughout 2025.
Economists predict 3-8% price growth for 2025-2026, driven by persistent demand, ongoing migration, and infrastructure upgrades. The lower interest rate environment is expected to support buyer activity and price appreciation across most property segments.
Westpac and other major lenders have noted significant numbers of potential buyers waiting for interest rate falls, suggesting pent-up demand that could drive stronger growth as rates remain accommodative.
Medium-term forecasts (2-3 years) remain cautiously optimistic, with risks tied to supply delays, construction cost inflation, and potential changes in population growth trends. However, the fundamental drivers of demand remain strong.
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How do Melbourne's affordability metrics—like price-to-income ratios—compare to historical averages?
Melbourne's median dwelling value-to-income ratio currently sits at approximately 7.0, which represents an improvement from the 2017 peak of 8.2 but remains well above historical averages.
| Time Period | Price-to-Income Ratio | Affordability Assessment |
|---|---|---|
| Historical Average (1990s-2000s) | 4.5-5.5 | Moderate to Good |
| 2017 Peak | 8.2 | Severely Unaffordable |
| 2024 | 7.2 | Seriously Unaffordable |
| September 2025 | 7.0 | Seriously Unaffordable |
| International Benchmark | 5.0 or below | Affordable |
| Moderately Unaffordable | 5.1-7.0 | Challenging but Manageable |
| Severely Unaffordable | 7.1+ | Major Affordability Crisis |
What's driving the current rental market conditions across Melbourne?
Melbourne's rental market is experiencing unprecedented tightness due to a combination of record-low vacancy rates and constrained new supply.
The vacancy rate of 1.3-1.8% represents the lowest level in years, creating intense competition among tenants and supporting rental growth. This tight market is primarily driven by rapid population growth outpacing new rental accommodation supply.
New apartment completions at decade lows mean very little new rental stock is entering the market, while demand continues to surge from both international migrants and interstate arrivals. The rental shortage is particularly acute in affordable segments of the market.
Rental yields are responding positively to these conditions, with apartments in prime locations like Carlton and the CBD now delivering 6.6-7.8% yields. This makes Melbourne increasingly attractive to property investors seeking rental income.
The combination of low vacancy, moderate rent growth, and improving yields suggests the rental market will remain favorable for property owners in the near term.
Conclusion
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.
Melbourne's property market outlook for the remainder of 2025 and into 2026 appears positive, supported by improved borrowing conditions, ongoing population growth, and constrained supply.
While affordability remains a challenge, the combination of infrastructure investment, lower interest rates, and strong rental yields creates opportunities for both owner-occupiers and investors across different suburbs and property types.
It's something we develop in our Australia property pack.
Sources
- OpenAgent Melbourne Property Market
- Property Update Australian Market Analysis
- Metropole Melbourne Housing Market Update
- RealEstate.com.au Market Analysis
- MPA Magazine Auction Analysis
- Property Update Auction Results
- RealEstate.com.au Spring Market Outlook
- BambooRoutes Melbourne Rental Yields
- UPA Australia Apartment Market Report
- Grattan Institute Housing Policy Analysis
-How Much Does Property Cost in Melbourne?
-Melbourne Property Investment for Foreigners
-Melbourne Property Market Forecast
-Average Property Prices in Melbourne
-Average Apartment Prices in Melbourne
-Best Areas to Buy Investment Property in Melbourne