The Melbourne residential market has experienced relatively soft conditions over the last three to four years. You could say Melbourne has experienced the COVID blues. So, where is the Melbourne market now, and where do we see it heading?
Market Performance
As of June 1st, 2025, Melbourne’s median dwelling value sits at $791,000, approximately 4.5% below the record high reached in March 2022. Melbourne is now ranked sixth nationally, behind:
- Sydney – $1.2M
- Brisbane – $915K
- Canberra – $855K
- Adelaide – $830k
- Perth – $815K
A Two-Speed Market
Melbourne is currently experiencing a two-speed residential market – Investment vs Owner Occupier.
High interest rates, land tax changes, rental reforms, and minimum maintenance requirements, leading to increased required capital expenditure, have made the Victorian residential market an unpalatable investment space.
This has resulted in high levels of investment-grade stock being added to the market with little investment activity to absorb it. This stock has largely been consumed by budget-constrained first home buyers, which in turn has dragged down the city’s median dwelling price.
On the flip side, A and B-grade updated, turnkey owner-occupier properties requiring minimal further capital outlay have performed relatively well. These properties have seen moderate growth of 5-10% over the last 3 years, driven by;
- Strong demand
- Resistance to embark on construction and renovation projects
- Limited supply of quality homes
So, where to from here?
Despite the ongoing housing shortage, the required number of new dwellings is still not being built. However, there are encouraging signs for the future;
- Population growth and migration forecasts remain strong
- Interest rate conditions are improving
- Construction costs are easing as several government projects reach completion
All indicating a potential significant tick in the residential sector.
There are still several state-based issues with taxation legislation, including the federal proposal regarding unrealised Super Fund gains and state-based debt. However, as it stands, there is a prevailing sentiment that the Melbourne residential market is undervalued.
Melbourne is arguably worth less now than it was five to eight years ago, and a key rule of residential real estate is that long-term land appreciates and provides the foundation for capital growth.
Investor Sentiment Returning
Early indicators suggest that investors are catching wind of this. There is a distinct increase in capital-growth focused investors, who are in a position to absorb relatively poor net yields in the short term, provided the asset is;
- Well located
- Neat, habitable, or updated
- Underpinned by a good-sized land component
This suggests growing confidence in Melbourne’s longer-term residential prospects.