Is Melbourne now the best Aussie city to nab a bargain property?

Looking towards the lower end, Sydney saw a 16.5 per cent gain over the same period (since March 2020), while Adelaide values surged by 45.2 per cent.

Melbourne’s sluggish performance of just 1.6 per cent growth since the onset of COVID-19 means the gap between Sydney and Melbourne house prices has blown out to 29.6 per cent — the dollar equivalent of approximately $382,000.

At one stage, in April 2022, the gap between Melbourne and Sydney house values was at 30.3 per cent — the biggest difference between the two cities since May 2006.

And with every other capital city recording sizeable gains, it also means that they are closing the gap — and improving Melbourne’s relative affordability.

While in March 2020, Brisbane houses were 47 per cent cheaper than they were in Melbourne — but that gap is now just 15 per cent.

Likewise, Melbourne was 85 per cent more expensive than Adelaide when the pandemic began, but that gap has narrowed to just 29 per cent.

In Perth, a whopping 88 per cent affordability gap three years ago has closed to just 15 per cent.

Down in Hobart, the difference in median house values has closed in from 54.5 per cent to 30.7 per cent over the same period, while Darwin was 95.7 per cent cheaper for houses in March 2020 than Melbourne, and now is just 55.5 per cent cheaper — a dollar-value difference of $325,300.

Mr Lawless noted that the underperformance of Melbourne’s house values in relation to other capital cities is due to “a combination of factors”.

He remarked: “The city experienced a more substantial drop in value than other capitals through the early stages of COVID, it recorded a softer increase through the upswing, and there’s been a significant decline in values through the rate hiking cycle to date.”

The research director noted that running concurrent to Melbourne’s softer housing market was a sharp drop off in demographic trends, with net overseas and interstate migration rates falling to record lows.

But now, Victoria’s interstate migration is normalising — and almost back in positive territory. And with Australia’s annual net overseas migration “surging to new record highs”, Mr Lawless earmarked that housing demand across the capital city is beginning to “strengthen substantially”.

This spells good news for Australia’s second-largest city, with Mr Lawless noting that as housing affordability remains stretched, it puts Melbourne “in a more competitive position to attract a greater share of housing market participants”.

This is evidenced by the city’s May rental vacancy rate being one of the lowest recorded in the country — sitting at just 0.8 per cent.

With economic pressures still remaining, Mr Lawless believes time will tell whether “strong demand, low supply and a relative affordability advantage can completely offset the impact of high-interest rates”.

“Demand from overseas migration is likely to remain a feature of the market for the next few years; however, borrower’s access to credit will be challenging while interest rates are high,” he continued.

He also acknowledges that more home owners may need to sell up — or may choose to do so — as persistently high cost-of-living pressures remain, which could see downward pressure applied to housing prices as supply increases, even though the city’s advertised supply level is trending lower than the same time last year — and is currently -7 per cent below the previous five-year average.