Melbourne missed the boom, but could it lead the next property upswing?

Long-time speculation that Melbourne’s property market is on the cusp of a turnaround has proved a mirage, with the property boom passing the southern capital by.

Full-time has been called on the boom, with rising interest rates and last month’s budget announcements snuffing out the final embers of the national property upswing.

And even though it missed the boom almost entirely, Melbourne is leading the downturn with prices down 2.3 per cent over the last quarter, according to analyst Cotality.

It was followed by Sydney, where prices fell 2.1 per cent.

Melbourne and Sydney are where the “slowdown has been most notable”, says analyst group PropTrack, noting the capitals both recorded their third consecutive month of price falls in May.

AMP chief economist Dr Shane Oliver said property prices were now expected to fall 1 per cent nationally this year, and “to fall around 5 per cent over 2026-27”.

Yet it’s far from all bad news for Melbourne.

Having missed the last boom, experts say it’s in a prime position for the next upswing over the coming years.

Melbourne buyers’ agent Fahey Younger, of Younger Hill, said looking at the short-term was “really short-sighted”.

“I think Melbourne will recover really, really well,” Ms Younger told Australian Property Investor Magazine.

“It historically does.”

But buyers needed to take a medium to long-term view.

“If you’re looking at the short-term, six to 12 months, that’s really short-sighted,” Ms Younger said.

“That five to ten year-cycle is what I look to.”

Loss of momentum

According to Cotality, the median Melbourne home is now $812,621, with prices down 0.8 per cent in May.

Of the nation’s eight capitals, Melbourne property is the sixth most expensive, ahead of only Hobart ($752,398) and Darwin ($634,368).

“Sydney and Melbourne are leading the downturn,” says Cotality research director Tim Lawless.

“We are continuing to see multi-speed conditions across Australia’s housing sector, with Perth and Melbourne at opposite ends of the spectrum.

“The past five years have seen these cities diverge sharply, with Perth values up a stunning 91.4 per cent while Melbourne home values are only 3.3 per cent higher since May 2021,” Mr Lawless says.

He says the “loss of momentum” in the market was in play well before the recent budget announcement, which will see negative gearing and capital gains tax concessions wound back.

“This loss of momentum had been building for some time, well before interests rates started to rise, conflict escalated in Iran and taxation changes were announced in the Federal Budget,” he said.

“Most cities recorded a regression in value growth through spring last year as affordability and serviceability constraints increasingly weighed on housing demand”.

Adam Woledge, Director, WoledgeHatt Buyers Advocates, specialises in the upper end of the market, and said the budget announcements had impacted, though not as much as expected.

“I’ve been surprised, there’s still fair demand regardless,” Mr Woledge told API Magazine.

His typical clients had a $4m-$5 million home, with money they were looking to invest, seeking a “good established home” in a blue-chip Melbourne suburb for around $1.5m to $2.5 million.

“People are still looking to invest,” Mr Woledge said.

“They’re saying ‘we understand we might not get the concessions we might have’, but they’re looking for capital growth gains over time and have confidence.”

He said prices at the top end were at the levels of about six years ago.

“Prices went up a lot in 2017 and then stabilised,” Mr Woledge said.

“Then in Covid it went up, with panic buying and people returning from overseas, and then it dropped back in 2023 and 2024.

“Now it’s maybe dropped a little again and we are back to 2019-2021,” he said.

Negative hype 'misplaced'

Ms Younger said that on the ground, the Melbourne market was not as bad as is being portrayed.

She represented home buyers, as opposed to investors building portfolios, who were driven by life circumstances, rather broader market conditions.

Negative media coverage was currently the biggest factor at play.

“That cycle of buying and selling happens regardless of the wider world,” Ms Younger said.

“But buyers’ sentiment is a lot more constricted, because people are being bombarded with ‘it’s the worst market’.

“But it’s not true when you’re sitting in the market yourself,” she said.

Yet buyers needed to be very careful and do their homework.

Houses in good locations were generally highly sought after, but there was an “oversupply of high-density, multi-story apartments”.

“I think they’re the death-knell, there’s absolutely bugger-all capital growth to those,” Ms Younger said.

“You want to be looking at the older style apartments,” Ms Younger said.

Low-rise apartments, with a good owners corporation — with easily read minutes — along with a maintenance plan and a sinking fund were key.

“The first thing we do when looking for buyers who want to buy an apartment is we pore over those (owners’ corporation minutes) like we are going to find gold — we mostly find turds,” she said.

Yet for the astute buyer, the search is worth it.

“It’s the best buyers’ market I have seen in my career,” Ms Younger said.

“Fortune favours the bold.”