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Michael Yardney
By Michael Yardney
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Melbourne property market forecast for 2024

key takeaways

Key takeaways

The Melbourne housing market has not performed as strongly as some other capitals over the last few years, but Melbourne’s property values are expected to play catch up over the next year or two.

We are seeing some early signs of a boost in confidence in both buyers and sellers and auction clearance rates have remained strong showing a significant depth of buyers in the market.

There is significant "inbuilt equity" in the undervalued Melbourne housing market at present, but not all Melbourne property is created equal - you need to know where to buy, what to buy and what suburb is ripe for investment.

One thing is becoming clear, if you wait around until interest rates eventually fall, all you’re going to be doing is playing tug-of-war with owner occupiers over the best properties.

With vacancy rates at historic lows, rentals are skyrocketing in Melbourne

Are you wondering what will happen to the Melbourne property market for the rest of 2024 and into 2025?

Over the last four decades Melbourne has been Australia’s strongest performing housing market ; however, over the last couple of years it has underperformed.

In fact, over the last 12 months dwelling prices have been basically stagnant, while many other capital cities enjoyed double digit capital growth.

Melbourne's property values have risen 10.6% since the onset of COVID-19 in March 2020, but they are still  -4.4% below their previous peak in March 2022.

Here is the latest data on the median property prices for Melbourne.

Property Median price Δ MoM Δ QoQ Δ Annual
All dwellings $777,390 -0.1% -1.1% -1.4%
Capital city houses $925,762 -0.2% -1.3% -1.3%
Capital city units $612,215 0.1% -0.5% -1.6%
Regional dwellings $561,990 -0.2% -1.4% -1.5%

Source: CoreLogic, 1st October 2024

The fact that the Melbourne housing market has not performed as strongly as some other capitals over the last year creates a window of opportunity for strategic property investors as Melbourne property values significant upside potential.

The average price of a Melbourne standalone house is the lowest it has been against its Sydney equivalent in around twenty years.

Sydney has always commanded a premium versus Melbourne but recently that premium has hit historic extremes.

The latest data show the typical house in Sydney currently fetches a 70% premium relative to the typical house in Melbourne, or put differently median house prices in Melbourne are approximately 41% cheaper than in Sydney.

This gap represents a more than $600,000 difference in median house prices in August 2024.

This is the cheapest houses in Melbourne have been relative to Sydney at any point in the last 20 years, and a significant deviation from the average discount over the past decade (29%).Sydney vs Melbourne

This means there is significant "inbuilt equity" in the undervalued Melbourne housing market at present, but not all Melbourne property is created equal - you need to know where to buy, what to buy and what suburb is ripe for investment.

One thing is becoming clear, if you wait around until interest rates fall, all you’re going to be doing is playing tug-of-war with owner occupiers over the best properties.

Buying properties below replacement cost in a market poised for recovery could yield substantial returns as the economic conditions improve and interest rates eventually fall.

Not only will strategic investors benefit from Melbourne’s long-term growth, but they will also get a “free kick” as the Melbourne property market catches up and reverts to its loan term mean growth rates.

Why the underperformance of the Melbourne market?

The underperformance of Melbourne's residential property market can be attributed to several factors, but the root cause boils down to economic challenges.

Victoria has experienced significant economic setbacks, particularly evident in the net reduction of 7,606 businesses during the financial year 2022-23, according to the Australian Bureau of Statistics.

One of the main reasons for the decline in business numbers in Victoria is the aftermath of the state's extensive lockdowns.

Another critical factor is the increased tax burden on businesses.

The Victorian government introduced a payroll tax surcharge in the 2021-22 State Budget as part of a “mental health and wellbeing levy”, targeting businesses with a payroll of $10 million or more.

This was followed by a further increase in payroll taxes in the 2022-23 State Budget as part of a 10-year COVID debt levy to repay the government’s substantial borrowing during the pandemic.

The economic struggles of Victoria have had a direct impact on the property market. Where the economy and jobs go, the property market follows.

At the same time…

Property investors are getting disillusioned with Melbourne

Property investors are increasingly abandoning the Melbourne market, driven away by stricter residential tenancy legislation and higher land taxes.

Recent reforms in tenancy laws have tipped the balance heavily in favour of tenants, making it more challenging for landlords to manage their properties effectively.

Additionally, the Victorian government's decision to hike land taxes has further compounded the woes of property investors.

Despite the current struggles, there is a significant opportunity in Melbourne's property market.

Property prices are considerably below replacement costs, creating a unique buying opportunity.

This situation is similar to where Brisbane and Perth were three years ago.

Back then, both cities were experiencing a period of underperformance, but those who bought during that time have since seen significant capital growth as the markets recovered.

At Metropole Melbourne we’re finding that strategic investors and homebuyers are back actively looking to upgrade, picking the eyes out of the market.

As you can see from the following chart, the number of properties listed for sale in Melbourne has not increased much since the market turned in early 2023.

Melbourne Total Property Listings 30 September

Source: SQM Research

On the other hand, the Melbourne auction market started the year strongly showing a significant depth of buyers in the market.

Melbourne Weekend Auction Market

While the data is insightful, as we know, Melbourne’s market is not a one-size-fits-all property market and A-grade homes and investment-grade properties remain in strong demand and are likely to outperform, many holding their values well.

There is a clear flight to quality with A-grade homes and investment-grade properties still in short supply for the prevailing strong demand, but B-grade properties are taking longer to sell and informed buyers are avoiding C-grade properties.

This is creating a window of opportunity for homebuyers and property investors with a long-term perspective.

Sure, many discretionary buyers and sellers have left the market at present, but life will go on in the Victorian capital – people will get married, people will get divorced, families will have babies and many Melbournians are going to need to move house.

When they realise interest rate rises have stopped (and we're possibly there already) and that inflation is under control (and we're past the peak already) they will come back into the market with a vengeance.

Half of Melbourne's suburbs now $1million -Plus

Despite Melbourne relative under performance, 306 suburbs notched up by price growth in the last financial year and the Melbourne housing market millionaires list has continued to grow with 192 suburbs, 47% of the cities total, now boasting typical seven figure house prices.

Proptrack economist Anne Flaherty said they were good prospects for Melbourne prices to continue rising, saying...

The trend we're going to see over the next year is more more suburbs into the $1 million club.

Prices of stabilised after falling I think once we continue to see that population growth drive demand for homes, that will push property prices up. And the reality is Melbourne's population is forecast to any other capital."

Ms Flaherty said it was also possible the wider Melbourne median house price could be at $1 million as soon as three years from now.

Melbourne’s rental markets remain exceptionally tight

Vacancy rates in Melbourne’s rental market are usually very tight, often sitting below the national baseline.

And thanks to soaring demand and a severe undersupply across Victoria, and the rest of the country, the national vacancy rate is exceptionally low today by historical standards.

SQM Research reports Melbourne’s vacancy rate at 1.5%.

By comparison, the vacancy rate which represents a balanced market, is around 2-2.5%.

Melbourne Residential Vacancy Rates 30 September

Source: SQM Research

Of course, this isn’t news.

As we know, Melbourne’s rental market, like most places across the country, has plunged into crisis.

Near-record-low vacancy rates, high rent prices, strong demand, and a rising population have combined to push the city’s market into a high-pressure cooker environment.

The data for vacancy rates and also weekly rent listings highlights that the distressing state of Melbourne’s rental market leads to a bleak outlook for renters.

Melbourne Weekly Rent Listings 30 September

Source: SQM Research

Melbourne's decline in vacancy rates and number of rental listings can be attributed to two factors:

  1. One major factor is the city's strong economy and job market. Melbourne is home to a number of major industries, including finance, technology, and healthcare, which are driving the demand for housing.
  2. Another factor is the city's growing population.  Melbourne's population has been growing steadily in recent years, with more people moving to the city to take advantage of its job opportunities and quality of life.

This increased demand for housing has led to competition among renters, driving down vacancy rates.

Overall, the decline in vacancy rates in Melbourne is a sign of the city's strong economy and growing population.

While it may be more difficult for renters to find a property, the city remains an attractive place to live and work.

Key trends for Melbourne’s housing market 2024

The Melbourne property market has been one of the strongest and most consistent performers over the last four decades.

After booming through 2020 and 2021 with prices rising by 15.8%, Melbourne housing values fell -7.9% from their peak in March 2022 through to the recent trough in January 2023.

While the Melbourne housing market turned the corner in early 2023, property price growth has been slower than in most other capital cities.

Any way that you look at it, Melbourne has now clearly passed the bottom of the downturn, and while Melbourne has not seen as sharp a recovery in prices this year as other capitals have, it also did not see as large a decline in 2022.

And there are firm indications that Melbourne property values and rents will slowly keep rising throughout the rest of 2024.

The level of new dwellings completed in Victoria in 2024 is likely to be the lowest level in 10 years with the current level of approved dwellings in Victoria 15% lower than the 10-year average;

Having said that, Melbourne’s housing markets were fragmented in 2023 with more than 50 Victorian suburbs seeing house prices exceed the average national house price growth for the year.

Across sub–regions, Melbourne's Inner and Outer East are outperforming marginally while the North West and West are seeing prices stabilise rather than rise.

Conditions are notably softer outside the capital, with property prices in most regional centres in Victoria falling or at best only stabilising.

And it’s worth remembering that even though Melbourne’s property market underperformed in the last year or two, it has been one of the strongest and most consistent performers over the last four decades.

Supply will not keep up with demand from all the new immigrants coming to Melbourne, and boosted by below-average vacancy rates, Melbourne residential rental rates grew by more than 9% for both houses and units over the past 12 months.

Melbourne's population growth vs. housing market

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Note: Projected population growth will continue to support Melbourne’s recovery, but will also pose problems.

Currently, there are 5.8 million people living in Melbourne, and 6.8 million in Victoria.

Victoria experienced the biggest population increase over the year to June 2023.

This can mostly be accounted for by a steady inflow of interstate and international arrivals and a subdued number of Victorians leaving the state (compared to other states which have had higher arrivals but also higher departures).

Annual population change

State Current Population Change over previous year Change over previous year (%)
New South Wales 8.3393m 172.6k 2.10%
Victoria 6.8125m 181.8k 2.70%
Queensland 5.4594m 138.5k 2.60%
South Australia 1.8517m 30.5k 1.70%
Western Australia 2.8786m 86.8k 3.10%
Tasmania 572.8k 1.7k 0.30%
Northern Territory 252.5k 2.2k 0.90%
Australian Capital Territory 466.8k 9.9k 2.20%
Australia 26.6385m 624.1k 2.40%

Source: ABS data

And the population growth is expected to continue growing too.

The Victorian government has a business plan to increase Melbourne's population by 2050 to 8 million people, which will put Victoria’s population at around 10 million people.

This means that over the next 30 years, Melbourne is likely to require 1.5 million more dwellings which will be made up of 530,000 detached houses, 480,000 apartments, and 560,000 townhouses.

While this increased demand is likely to translate to continued strong property price growth and a more robust economy, which is great news for investors, its infrastructure will struggle to keep up.

However Melbourne's public transport system, in particular, is struggling to keep up with the increased demand, leading to overcrowding, delays, and other issues.

The city's roads are also becoming increasingly congested, making it difficult for people to get around.

To address these challenges, the Victorian government has committed to investing heavily in public transport infrastructure.

The Metro Tunnel project, for example, will create a new underground rail line through the CBD, while the Suburban Rail Loop project will create a new orbital rail line connecting Melbourne's suburbs.

These projects will help to relieve congestion on Melbourne's roads and public transport system, providing much-needed relief to commuters.

The local government also has plans to invest in the city’s sustainable infrastructure and practices and is looking to develop new areas in surrounding suburbs to help facilitate the impending population boom.

Despite the Victorian Government’s Housing Statement ambition to build 800,000 dwellings in Victoria over the next decade, the number of dwellings under construction across Victoria has fallen over the past 12 months.

According to the ABS, there are currently 68,100 dwellings under construction across Victoria, 6% lower than the activity recorded 12 months ago, largely impacted by the slowdown of high-density apartment development.

The level of new dwellings completed in Victoria in 2024, is likely to be the lowest level in 10 years.

With construction costs having risen by up to 40% since Covid and higher financing costs, the level of new supply is likely to continue to decrease in coming years with commencements falling to their lowest levels since 2014.

Top 10 Melbourne suburbs where property has earned more than the average worker

Overall Melbourne property prices grew by a relatively modest 1.33% over the year.

But in the exclusive inner-Melbourne suburbs of Toorak and South Yarra, houses still gained more than the average wage at $237,486 and $136,311 respectively.

Meanwhile, suburbs east of the city in Canterbury, Balwyn and Surrey Hills also saw house values jump by $160,638, $156,400 and $125,312 respectively.

Further east the data was also impressive.

House prices in Wheelers Hill, Park Orchards, Lysterfield and Doncaster East increased $115,706, $103,194, $101,332 and $99,385 respectively over the year, all more than the average Australian wage.

Top 10 earners in Victoria

Suburb Region AVM 12 months ago Current AVM Change ($)
Toorak Melbourne - Inner $4,148,336 $4,385,822 $237,486
Canterbury Melbourne - Inner East $3,121,281 $3,281,919 $160,638
Balwyn Melbourne - Inner East $2,702,699 $2,859,099 $156,400
South Yarra Melbourne - Inner $1,891,053 $2,027,363 $136,311
Surrey Hills Melbourne - Inner East $2,163,709 $2,289,021 $125,312
Mont Albert Melbourne - Inner East $2,077,778 $2,200,017 $122,239
Wheelers Hill Melbourne - South East $1,301,619 $1,417,325 $115,706
Balwyn North Melbourne - Inner East $2,102,890 $2,214,560 $111,670
Middle Park Melbourne - Inner $2,682,799 $2,790,123 $107,325
Park Orchards Melbourne - Outer East $1,900,536 $2,003,730 $103,194

Source: PropTrack/realestate.com.au

Melbourne’s housing market - the forecast for 2024

Digging deeper into the stats, some Melbourne properties - bearing in mind there are multiple markets within markets - have far outperformed others.

But it seems that freestanding Melbourne houses within a close distance of the CBD or in good school catchment zones are the most stable.

It really is a tale of two cities - while some properties over-perform, others underperform.

But the expert consensus is that strong population growth and tight supply will continue to push property prices upwards as we move through this next stage of the property cycle.

And that is even in the face of the Reserve Bank continually hiking interest rates in order to get on top of Australia’s soaring inflation levels.

While Melbourne’s property market has lagged behind Sydney and Brisbane, there are clear indicators that it will continue on its upward trajectory.

Here are some of the most recent expert forecasts to take note of:

  • ANZ forecasts a 3-4% property price rise in Melbourne in 2024.
  • CBA forecasts a 5% property price rise in Melbourne in 2024.
  • NAB forecasts a 5.5% property price rise in Melbourne in 2024.
  • Westpac forecasts a 3% property price rise in Melbourne in 2024.
  • PropTrack forecasts a 1-4% property price rise in Melbourne in 2024.
  • SQM forecasts up to a -3% property price fall in Melbourne in 2024.

Overall though, supply remains constrained much like Australia’s other major cities.

Oxford Economics recently made the following forecasts of where house prices will be in 3 years time. 

As you can see, they expect very strong property price growth for both houses and units in Melbourne over the next three years as Melbourne reverts back to mean long-term growth rates.

3-year property price forecast (by June 2027)

City Median price Total price growth
Houses Units Houses Units
Sydney $1.93M $1.09M 18% 22%
Melbourne $1.28M $0.78M 21% 20%
Brisbane $1.21M $0.71M 19% 23%
Adelaide $0.95M $0.69M 16% 18%
Perth $1.05M $0.64M 30% 30%
Canberra $1.17M $0.75M 19% 20%
Hobart $0.86M $0.71M 13% 16%
Darwin $0.7M $0.46M 24% 26%

Source: Oxford Economics, PriceFinder

READ MORE: 6 tips for choosing the right investment property

Michael Yardney
About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
433 comments

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