Melbourne recovery well underway amid ‘decisive growth turnaround’

Additionally, growth had accelerated for the third straight quarter, running at almost double the pace of the same period last year, with annual gains rising to 7.4 per cent.

“The result confirms a decisive turnaround from the annual declines seen at the start of 2025 and signals that Melbourne has firmly re-entered a growth phase,” Domain said.

Domain’s chief of economics and research, Dr Nicola Powell, said Melbourne was re-entering a growth cycle later than other cities because it had been a soft property market for a while.

She said Melbourne’s higher stock levels created choice, which initially led to little price growth, while land tax changes raised costs for investors, driving them to other states.

“The other one was weaker demographic and population dynamics, particularly net interstate migration. We know that Victoria historically always has positive net interstate migration, and there’s been a big chunk of time where it’s been negative.”

However, she said Melbourne’s market had started to present value to buyers, particularly due to its relative affordability, supported by three rate cuts last year.

“That in itself can create an element of urgency to buy before values get to a new peak, and I think that’s one of the dimensions that Melbourne has been experiencing.”

Domain’s report also showed conditions in the unit market were strengthening, with Melbourne’s prices climbing 3.8 per cent ($21,833) in the December quarter to $601,184.

Domain said that the result marked the unit market’s highest level since its December 2021 peak, and the strongest quarterly rise in six years.

Annual growth in the unit market rose to 4.4 per cent ($25,505), marking the strongest uplift in four years, leaving prices just 0.4 per cent ($2,405) below their peak.

McGrath Clayton principal and auctioneer, Ethan He, said conditions in the market had been picking up in January compared to the end of last year, with supply steadily increasing.

“Usually January is very quiet, but this January from my agency, we have listed about 35 auctions already. My February is full with auctions,” he said.

“We do have more buyers coming through. Early this year, we sold a few properties we couldn’t sell at the end of last year. Everyone’s coming back with a fresh mindset, everyone’s looking to buy right now.”

He said in the last 12 months, there had been more interest from interstate investors, particularly from Brisbane, Adelaide and Sydney, with his area presenting a range of opportunities.

“There’s quite a few areas close to Monash Uni, which is very close to my market. The rental yield is very strong, one-bedroom apartments for $400, up to $500 per week,” he said.

Powell said she had seen investors increasingly returning to Melbourne's housing market, chasing capital growth amid rising prices.

“We might see a bit of a slowdown as a result of a higher cash rate. But when you're looking at a market like Perth that has seen a 91 per cent increase in house prices in five years, many investors will look at that market and say it's maturing.

“We are not going to see the gross profile that other capital cities might present. And this is where I think Melbourne still offers that value opportunity.”

Ultimately, Powell said Melbourne’s price growth could begin to outpace other capital cities in the future, following an "unusual" period of underperforming.

“When you look at things like population growth, which we know is one of the biggest drivers of housing demand, by the financial year of 27, Victoria is expected to be the fastest growing state in terms of population.

“So, could we at some point see Melbourne outperform other capital cities? Absolutely,” she concluded.

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