Melbourne home prices lag other capitals, but buyers spot value in key suburbs

Melbourne property prices are substantially lower than all other major capital cities, and despite a modest uplift over the past year, still remain below the peak of almost four years ago.

Last week’s interest rate rise, with the possibility of more on the horizon, has put paid to speculation the southern capital is on the cusp of a resurgence, but buying opportunities remain, according to experts.

In January home values rose 0.8 per cent nationwide, according to the latest data from Cotality, but the two biggest cities are dragging, according to Cotality’s Research Director, Tim Lawless

“Sydney and Melbourne are weighing on the headline numbers, recording a 0.2 per cent and 0.1 per cent increase respectively in January; a marginal pick-up following the slight falls recorded in December,” Mr Lawless said.

The median Melbourne dwelling value is $830,400, which remains 0.7 per cent below the peak in March 2022.

That’s despite an uplift of 5 per cent over the past 12 months.

Over the past five years, which includes a surge ahead of the 2022 peak, Melbourne values have grown 14.9 per cent, which is by far the lowest rate of growth of any Australian capital city.

Over that same time frame, Perth, Brisbane and Adelaide prices grew by 89.2 per cent, 87.2 per cent and 79 per cent respectively.

In Sydney prices grew 35 per cent over the past five years, to a median dwelling value of $1.29 million, with home values in the Harbour City remaining by far the highest in the nation.

Melbourne diversity delivers growth in some areas

Despite the relative affordability of Melbourne home values, affordability, as in all capital cities, remains a major factor.

“I agree with the broad view that Melbourne will likely be one of the weaker-performing capital cities over the next 12-24 months,” said Sky Hammer, Director of Convergence Buyer’s Agents.

But Melbourne is far from one market, says Mr Hammer.

“I’m very excited about Melbourne at a suburb level,” he told API Magazine.

“Melbourne isn’t one market, it’s a collection of micro markets.

“And while the city average may look soft, select suburbs will continue to outperform, not only Melbourne, but many suburbs nationally,” he said.

According to Cotality, over the past 12 months Frankston, in the city’s southeast, was by far the stand-out performer, with median values increasing 14.3 per cent to $856,700.

The figures are for the Frankston local government area, and include the suburbs of Frankston, Frankston North, Frankston South, Carrum Downs, Langwarrin, Sandhurst, Seaford and Skye.

Mr Hammer said he expected that strong growth to continue, as affordability constraints pushed buyers further afield.

“Melbourne might be around the mid-single digits on the headline numbers, but 80 per cent of our purchases last year were in Frankston North, Frankston, Carrum Downs and Skye, and those markets performed well above the city average,” he said.

“Frankston North (grew by) around 21 per cent, with others circa 15 per cent. That’s roughly three times the Melbourne average and on par with some of the best growth rates in the country.

“This year will be the same again and we will only be buying in a handful of Melbourne suburbs,” Mr Hammer said.

Interest rates not dampening demand

Buyers agent Andre Pereira, who is based in Frankston, said buyer demand in the area remained strong, a trend he expected would continue, with the area representing “a lot of value”.

“Many investors are looking for that lower end of the range in houses, particularly in the Frankston market,” Mr Pereira told API Magazine.

Last week the Reserve Bank rose the official interest rate by 0.25 percentage points, to 3.85 per cent, following significant inflation in the second half of last year.

Mr Pereira said that so far, the rise appeared to be having little impact on buyer sentiment.

“With interest rates up, I was expecting a different reaction from what I’m seeing on the ground,” he said

“Buyers are still out there and still competing strongly for good properties.

“Melbourne compared to the other capital cities presents a lot of value right now,” Mr Pereira said.

Mr Hammer said he expected rising rates would weigh further on property prices at the top end of the market.

“At higher price points, it will continue to dampen demand in Melbourne, especially from investors that already have to deal with the land tax on more expensive properties,” he said.

But while there would be a “short term pause” in buyer sentiment, the rate rise would have minimal impact on the middle and lower end of the market.

“We expect to see these rate rises push homeowners down into lower price points, adding even more fuel to the fire for purchases under $950,000,” Mr Hammer said.

Affordability remained the key.

“Owner-occupiers are searching wider for family friendly suburbs that remain affordable,” Mr Hammer said.

“Carrum Downs and Langwarrin continue to have queues down the street for houses that are ‘move-in ready’ with strong owner-occupier appeal. 

“I’d expect the shift from inner-Melbourne to more affordable suburbs with good schools and infrastructure to continue throughout 2026.”