Melbourne homes are now worth 4.4% less than they were at their peak in 2022, and fell 0.21% in July, according to PropTrack’s latest report.
Here’s a look at whether the Victorian capital is on a different trajectory to other cities – and what this might mean for housing affordability and the wider economy.
What’s happening to housing costs in Melbourne?
By a range of property measures, Melbourne (and regional Victoria) is beginning to trail other mainland capitals, according to data from CoreLogic.
It was the only major city to post a drop in median value in July, with prices dropping about $100 a day to $781,949.
By contrast, Adelaide values rose by about $440 a day, and will overtake Melbourne this month if the trend continues – the first time that would have happened in more than three decades.
Perth, with its 2% jump in values in July, will fly past Melbourne this month for the first time since 2015 if the cities’ respective trajectories continue for another month.
“It’s definitely diverging,” said Tim Lawless, CoreLogic’s research director, adding “the bottom is not falling out of the market”.
“If you look at the growth rate, it’s a little bit worse than flat [but] but everywhere else is generally seeing a rise,” he said. Sydney’s gains, though, were also levelling off.
What are the trends with sales and rents?
Since the start of Covid in early 2020, Melbourne dwelling prices were up more than one-tenth, or about $75,000. Sydney’s were up almost 29% or $262,000, CoreLogic said.
Brisbane had the largest absolute increase, at $341,000, or 64%, while Perth clocked the biggest percentage jump since Covid began, at 70% or $318,000.
Melbourne’s values have dropped almost 1% in the past three months, while Perth’s were up more than 6%.
When it comes to rents, Melbourne is not lagging. National rent increases slowed to 0.1% in July, the least since August 2020.
Melbourne’s rose 0.3%, or the least since December 2021, CoreLogic said.
House rentals in Melbourne were 8.2% higher in July than a year earlier, trailing only Perth’s 12.6% pace of increases.
The cost of renting a unit in Melbourne was 7.2% higher than a year earlier, in third place behind Perth’s 13.3% gain and Adelaide’s 8.7%, CoreLogic said.
What role is supply playing?
Alone among the major cities, vendor listings in Melbourne are back above pre-Covid levels, providing one reason for the relatively weak price gains for the city.
The Victorian capital now has more stock on the market than its average over the past decade, notes CBA, the largest mortgage issuer. Perth’s and Adelaide’s listings were down by half.
“There simply isn’t a demand coming into the Melbourne marketplace that we’re seeing in other markets that’s soaking up that level of stock being advertised for sales,” CoreLogic’s Lawless said. “[That] gives buyers more choice and takes the urgency away from the market.”
Another factor is that Victoria had a “much healthier level of new supply additions over the past decade or so”, compared with other states, particularly New South Wales, he said.
Is the government helping supply or demand?
One drag on the market is that investors are finding other states more attractive.
“Victoria’s in a pretty deep debt hole, and they seem to be using property taxes to help dig their way out of it,” Lawless said. “That is acting as a disincentive for capital coming to the state, particularly property investments.”
Jacob Caine, president of the Real Estate Institute of Victoria, said there was an “exodus of property investors out of the market”, with rising interest rates in the past two years one driver.
“The regulatory environment down here has shifted a lot over the last four years as well,” he said. This included more than 130 changes to the Residential Tenancies Act, the imposition of new rental minimum standards – “which are actually great [for] the rental experience”, and “significant additional taxes”.
The Victorian premier, Jacinta Allan, on Thursday said a new vacant residential land tax would encourage property owners “to consider the best use of that property”. The move was “another example of how we are using every lever we can to build more homes, make more homes available to more Victorians”.
Asked whether falling property prices was good or bad, Allan replied: “That is a little bit in the eye of the beholder in terms of where you sit in the world of ownership or otherwise of real estate.”
What next?
REIV’s Caine noted Demographia’s annual report still listed Melbourne as the world’s seventh-least affordable city to live – behind Sydney’s second-place ranking – meaning it remained “incredibly challenging” to enter the market.
Still, with median prices in Sydney roughly 50% higher than Melbourne, the Victorian capital is becoming “much more affordable”, Caine said.
Lawless agreed, saying Melbourne was “building up a pretty solid competitive advantage from an affordability perspective”.
And despite the present investor gloom, annual rental yields in Victoria were “actually higher than they’ve ever been at the moment”, at 3.8%, Caine said.
The cycle of Melbourne lagging other cities might well prove temporary particularly when recent migrants start switching from renting to buying homes.
Melbourne had jockeyed with Brisbane as Australia’s second most expensive city behind Sydney for the past four or five decades, Caine said. “There’s every likelihood that Melbourne will push back up and overtake Brisbane.”