Urgent Warning for Melbourne Property Market
By: Niro Thambipillay
September 10, 2026
Melbourne has been one of Australia’s weakest major property markets in recent years, and the latest figures still look confronting. Dwelling values fell 1.1% in August and were down 4.7% across the previous 12 months, while major-bank forecasts point to further weakness. Yet rising rents, renewed interstate migration and Melbourne’s widening affordability advantage are beginning to change the outlook. In this article, I break down the five forces shaping the market and the question every owner or buyer needs to answer before acting.
TL;DR
Melbourne’s downturn is real, but the market is no longer a simple story of falling prices. Values remain below where they were five years ago, auction clearance rates are weak and the major banks expect more downside. At the same time, rents are rising quickly, investor-owned rental supply has reduced, domestic migration is improving and Melbourne is now markedly more affordable than Sydney, Brisbane, Perth, Adelaide and Canberra. The opportunity is selective and early-cycle, with suburb choice, new supply, land tax, cash flow and personal risk tolerance determining whether Melbourne is a trap or a strong contrarian investment.
Key Takeaways
- The downturn is still visible: Melbourne dwelling values fell 1.1% in August and 4.7% over the previous 12 months.
- Major banks expect more weakness: Westpac forecasts a 4% fall this year, while ANZ expects a 12.8% peak-to-trough decline.
- Rental pressure is building: Melbourne rents are rising at among the fastest rates in Australia after many investors sold and left the market.
- Affordability is attracting demand: Melbourne’s $786,000 median dwelling value is below Sydney, Brisbane, Perth, Adelaide and Canberra.
- Some suburbs are already rising: Sunbury, Brimbank and Casey recorded positive annual growth despite the citywide decline.
- Selection and risk tolerance matter: New supply, land tax, cash flow and uncertain market timing make Melbourne a market for careful, suburb-specific decisions.
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What Is Really Happening in the Melbourne Property Market?
Melbourne’s headline numbers remain poor. Unlike Perth, Adelaide and Brisbane, a recent decline does not merely erase a few months of growth. A typical Melbourne dwelling is still worth less than it was five years ago, even as many other Australian markets added hundreds of thousands of dollars.
That makes it easy to dismiss Melbourne completely. But property markets turn before the consensus becomes comfortable, and several demand and supply indicators are now moving in a different direction from prices.
1. The Downturn Is Real
Melbourne dwelling values fell another 1.1% in August, taking the annual decline to 4.7%. Westpac expects prices to fall 4% this year, while ANZ forecasts a 12.8% decline from the market’s peak to its eventual low point.
Conditions on the ground reflect that weakness. Auction clearance rates are barely around 50% in a city where auctions play an unusually large role. Buyers have negotiating power, sentiment remains soft and many investors still refuse to consider Victoria.
2. The Rental Market Is Tightening
The first quiet change is rental growth. Melbourne rents are now rising at among the fastest rates in the country. That is a logical consequence of investors selling after Victoria increased land-tax costs and introduced additional obligations for rental-property owners.
When investor-owned properties leave the rental pool, available rental supply falls. Some former tenants may buy those homes, but that does not solve the shortage when Melbourne’s population continues to grow. New households keep creating demand for somewhere to live.
3. Affordability Is Pulling People Back
Melbourne has always received strong overseas migration, but the more important recent change is domestic migration. The video highlights early evidence of people moving from Queensland to Victoria as relative affordability shifts in Melbourne’s favour.
The comparison is striking. The median dwelling value cited in the analysis is about $1.22 million in Sydney, $1.08 million in Brisbane, almost $1 million in Perth, just over $937,000 in Adelaide and just under $865,000 in Canberra. Melbourne sits at approximately $786,000.
Australians still want to own a home, and many will relocate to make that possible. Interstate migration helped drive earlier booms in Brisbane, Perth and regional markets. Melbourne is now beginning to receive the same type of demand support. This is also why the conditions a genuine Australian property crash would need are not captured by price falls alone. Employment, population, forced selling and available supply all matter.
4. Performance Is Already Splitting by Suburb
Melbourne fell 4.7% overall during the year cited in the video, but not every area moved backwards. Sunbury rose 4.3%, Brimbank gained 3.7% and Casey increased 2.8%. Even Keilor, where the median price is above $1 million, recorded annual growth.
This divergence is classic Melbourne. Nearby suburbs can produce very different results because their price points, dwelling types, new-development pipelines, owner-occupier appeal and buyer depth differ. It means choosing the right suburbs to invest in matters far more than simply deciding to buy somewhere in Melbourne.
5. Supply, Tax and Timing Decide the Opportunity
The first risk is new supply. Some Melbourne pockets have substantial pipelines of house-and-land estates or off-the-plan apartments. Buying into an area where construction can continually add competing stock may suppress capital growth. Increasing supply is the enemy of scarcity.
The second risk is ownership cost. Victoria has the country’s lowest land-tax threshold, and investors also face compliance expenses. Rents may be rising quickly, but buyers must test whether the income genuinely compensates for land tax, maintenance, regulation and the cash-flow impact of deferred negative gearing.
The third issue is timing. Melbourne is the only capital city market that went backwards across the five years discussed in the video, while regional Victoria rose 13.2%. The fundamentals suggest Melbourne may be near the bottom of its cycle, but nobody can guarantee when the next meaningful upswing will begin.
So, Is Melbourne a Trap or an Opportunity?
Melbourne can be an opportunity for a buyer who understands the additional risk. Prices are comparatively affordable, rental conditions are tightening, domestic migration is improving and some suburbs have already returned to growth. If a broader recovery arrives, the long period of underperformance gives Melbourne room to outperform many other markets over the following two to three years.
The trade-off is uncertainty. Buyers who prefer confirmation may accept missing the first 10% or 15% of growth and enter once the upswing is established. Buyers with a higher tolerance for timing risk may act earlier, particularly if their budget is below $750,000 and they want a freestanding house that is increasingly difficult to find in other capital cities.
What This Means for Owners and Buyers
The market calls for a careful, evidence-based response:
- If you already own in Melbourne: Do not let a citywide decline make the decision for you. Review your property’s local supply, rental performance, land-tax exposure, holding costs and long-term owner-occupier appeal.
- If you are looking to buy: Avoid purchasing blindly because friends are buying or because Melbourne looks cheap. Compare established supply with new construction, test cash flow carefully and select a suburb that suits both your price point and risk profile.
Melbourne is not a simple bargain and it is not a market to dismiss. It is an early-cycle, highly selective market where the right property and the wrong property can produce very different outcomes.
Summary
- Melbourne dwelling values fell 1.1% in August and 4.7% over the previous 12 months
- Westpac forecasts a 4% decline this year, while ANZ expects a 12.8% peak-to-trough fall
- Auction clearance rates remain close to 50%, confirming that buyers still hold negotiating power
- Rents are rising quickly after many investors sold, reducing the number of homes available for rent
- Melbourne’s $786,000 median dwelling value is materially below several other capital cities and is supporting renewed domestic migration
- Sunbury, Brimbank, Casey and Keilor demonstrate that suburb-level performance can differ from the citywide result
- The opportunity depends on new supply, land tax, cash flow, suburb selection and each buyer’s tolerance for uncertain market timing
Frequently Asked Questions
Not at a citywide level yet. Melbourne dwelling values fell 1.1% in August and 4.7% over the previous 12 months. However, rising rents, improving domestic migration and positive growth in selected suburbs are early signs that conditions beneath the headline are beginning to change.
Weak buyer sentiment, investor exits, higher land-tax and compliance costs, and auction clearance rates near 50% continue to weigh on Melbourne prices. The major banks also expect further weakness before a broader recovery becomes established.
Many investors sold their properties and reduced the number of homes available for rent, while Melbourne’s population continued to grow. That combination of lower rental supply and ongoing household demand is pushing rents higher.
The video cites Sunbury at 4.3% annual growth, Brimbank at 3.7% and Casey at 2.8%, while Keilor also recorded growth despite its higher median price. These results show why suburb selection matters more than the citywide average.
Melbourne may suit buyers who accept early-cycle timing risk and carefully assess suburb-level supply, land tax, cash flow and owner-occupier demand. It is not a market to buy blindly, but its affordability, rising rents and improving migration create selective opportunities.
About the Author
Niro Thambipillay
Niro is the founder of Investment Rise, one of Australia’s most trusted property buyers agencies. He has helped hundreds of first-time investors build property portfolios and was voted one of the most trusted Real Estate entrepreneurs in the Asia Pacific region (APAC 2022). Niro is also the author of “How to Build a Property Portfolio That Pays You an Income Every Month.”
