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Melbourne’s median house price has fallen more than $6000 from its peak, as two interest rate rises, global economic uncertainty and a cost-of-living crisis deter unnerved buyers from making big purchases.
Melbourne’s median house price fell 0.6 per cent, over the March quarter to $1,082,728, the first decline in 18 months, shows Domain’s latest House Price Report, released on Thursday.
The median price for units also dipped 0.4 per cent, or $2674, with the typical unit now priced at $611,182.
Domain chief of research and economics Dr Nicola Powell said the falls, while modest, marked a turning point.
“Both Melbourne and Sydney are highly sensitive to interest rate changes, but we are seeing a double whammy for Melbourne: weak consumer sentiment and unnerved buyers,” she said.
“People are feeling hesitant due to the war in the Middle East, supply chain issues and re-emerging cost-of-living pressures. On top of that, we’ve had two back-to-back rate hikes this year that caught many by surprise.”
Powell said expectations of more rate hikes and Victoria’s rising housing supply was pushing “unnerved” buyers to shift their decisions, “either pausing to see what happens at the end of the year or becoming much pickier”.
“They realise that supply is rising, which gives them more choice and better negotiating power,” she said. For first home buyers, the falling prices were a mixed bag, Powell added.
“Falling prices mean great affordability, but you don’t want to be in a position where you’ve got negative equity,” Powell cautioned, but added that for those with the ability to navigate higher mortgage interest rates, the current conditions presented a better purchasing environment.
For Corinna Economic Advisory economist Saul Eslake, falling house prices are not necessarily a bad thing.
While he said the downward trend may continue if fuel prices and the cash rate continue to rise, “this is not necessarily a cause for panic, or for governments to do things like increase first home owner grants to stop prices from falling”.
“Cheaper housing would be a good thing,” Eslake said, adding that Melbourne’s stronger growth in housing supply and higher taxes on investors meant the capital was now relatively affordable. Even Brisbane, Adelaide, Canberra and Perth are now more expensive.
Separate figures showed Australia is behind on the federal government’s target to deliver 1.2 million new homes by June 2029, and likely to reach this by the September quarter 2030, the National Housing Supply and Affordability Council’s State of the Housing System 2026 report found.
Gross new housing supply is estimated at 980,000 dwellings over the five-year Housing Accord period, 42,000 more than forecast a year earlier, although the Middle East conflict makes the outlook uncertain.
Despite the quarterly fall, houses and units are still more expensive than this time last year, up 4.4 per cent and 5.5 per cent respectively.
Woodards Elsternwick real estate agent Sean Rice said that in the context of real estate, a 0.6 per cent drop was modest. He said while economic uncertainty had dented some sales in the middle to higher end of the market, people were still buying.
“The middle sector to the higher end of the market is suffering from the noise in terms of your price point, your mortgage repayments … and people with high-end priced homes are maybe holding back because if they’re downsizing from a luxury home, their downgrade purchase is not yielding the great reward,” he said.
But with fuel prices decreasing, Rice said people were coming back to opens – even if they were a little more careful.
“We’re still seeing good numbers through opens, but the buyers making the decision to purchase are really doing their due diligence, really sacrificing a little bit of lifestyle to get themselves into the market.”
The first home buyer market, however, was booming, Rise said, with “the sub $950,000 bracket ticking along really nicely”.
“The lower end of the market is certainly seeing a lot of competition between first home buyers to secure their home to get into the market,” he said.
First home buyer Tessa Hull has recently moved into her one-bedroom apartment in Melbourne’s inner south-east after 12 weeks of looking for a property.
The 26-year-old, who works in marketing, said she had originally planned to buy in Richmond using the 5% Deposit Scheme, but reconsidered after the market boomed out of her price range.
“So I expanded my search and this property came along, and I had to have it,” Hull said. Despite the economic uncertainty, Hull said she had applied for a loan with eyes wide open.
“It was important to buy within my means: I was checking my budget with my dad the whole time, and with the cost-of living prices, things are going to go up and never go down again,” she said.
“I went into it knowing there will always be things happening, and if I don’t buy now, I will regret it – the market is always moving.”
