In an attempt to boost the economy, recent downward pressure on interest rates are likely to have the strongest impact on homebuyers in Melbourne, with more rate cuts anticipated by the end of year
While property prices and living costs remain a consideration, many local and interstate investors are being attracted to new opportunities in the evolving Melbourne property market
Winter/25
Melbourne Residential
Falling property prices and a growing housing supply have improved affordability for both first time buyers and investors. The market is showing promising signs of recovery and is raising sentiment across the city
As more rental homes come onto the market, this is helping ease conditions for tenants, offering some relief to households facing ongoing cost-of-living pressures.
The Economy Key Drivers
Interest Rate
3.85%
The Reserve Bank of Australia (RBA) lowered the interest rate target 25 bps to 3 85% in May 2025 Many banks followed this direction and adjusted their mortgage lending rates accordingly. Interest rates significantly influence the cost of borrowing money, which in turn affects the willingness and ability to apply for a home loan. The RBA forecasts the target could be 3 40% by the end of 2025, and 3 20% in 2026 When interest rates are lowered, borrowing becomes cheaper, which can stimulate demand for residential property and drive economic growth
Unemployment Rate
4.3%
Employment levels influence people’s ability to initially purchase a home and then the ongoing mortgage repayments servicing the loan The unemployment rate in Australia was 4 3% in March 2025, which is considered a healthy, balanced labour market given the rate falls within the ideal range of 4% to 5% The RBA forecasts the unemployment rate to rise by the end of 2025 to 4.3%, then remain relatively steady in 2026
Economic Growth 1.3%
Economic growth remains a key driver because it fuels job creation, boosts incomes, and increases demand across property markets Australia recorded economic growth at 1.3% in 2024, following stronger performance of 3.1% in 2022 and 1 5% in 2023 Looking forward, the RBA forecasts economic growth to lift to 2.1% in 2025 and 2.2% in 2026. Ideally, sustainable economic growth is considered to be around 2% to 3%
Population Growth
2.7%
Population growth increases housing demand as more people require places to live, putting pressure on existing housing supply and infrastructure. The Melbourne annual population growth slowed to 1 3% in June 2022 as a consequence of slower migration throughout the pandemic, then rebounded to 3 3% in 2023, to record 2 7% growth in 2024 The ABS have projected the long term population growth for Melbourne at 1.8%.
Source: McGrath Research, RBA, ABS
Residential Sales Update
Sales -27%
Total Number of Sales Melbourne
Melbourne residential sale transactions tallied to 21,683 in the first quarter of 2025, a downward movement of 27% from the previous quarter Although over the past year, the total number was 4% higher, reaching 109,014 sales. This was influenced by the total number of listings being 8 3% higher in the four weeks ending March 2025 when compared to the equivalent period last year. Other factors include the tighter lending environment with fewer people qualifying for loans and market anticipating a further reduction in interest rates by the end of the year.
Auctions
1,364
There were 1,364 property auctions held in Melbourne in the week ending 30 March 2025 According to CoreLogic, 60 5% of the homes were sold under the hammer. This was the same rate as one quarter ago, when 1,236 auctions were held By comparison, the same quarter last year saw 60 3% sold, from 283 auctions. Clearance rates above 70% suggest strong demand and a seller’s market, while a rate below 60% indicates weaker demand and a buyer’s market
60.5%
Auction Clearance Rate
Melbourne
Source: McGrath Research, CoreLogic
Source: McGrath Research, APM
Source: McGrath Research APM
Residential Sales Update
Duration 81 days
In the March 2025 quarter, Melbourne homes took an average 81 days on market - from the time they were listed to the day they went under contract This duration was 66 days the quarter before and 75 days one year ago Historically, houses have sold faster than apartments and this was no different in the past quarter Houses averaged 75 days to sell in Q1 2025, which was 14 days longer than in Q4 2024 and 7 days more than in Q1 2024 Apartments took an average 94 days to sell, being 16 days longer than the previous quarter and 5 days more than a year ago A low number of days on market mean homes are selling fast with more desirable properties, while a high number of days suggests a slower market with above market values
Average Days on the Market
Source: McGrath Research, APM
Listings
Newly advertised property listings in Melbourne were 18 0% higher in the month of March 2025 than the equivalent period last year. This trended above the Australian average of 4 5%
Melbourne’s total number of listings in the month of March 2025 were 8 3% above the equivalent period last year By comparison, total listings were 5.1% higher across Australia.
Source: McGrath Research, CoreLogic
Source: McGrath Research, APM
Residential Prices Update
Median Price
$881,000
Median property prices provide a benchmark for homebuyers when assessing market performance and can help identify emerging trends Melbourne residential property prices fell by 1.8% in the year to March 2025, with a 0 4% decrease recorded in the most recent quarter This brought the median value to $881,000, reflecting slower housing demand. Median house prices, at $1,036,000, are now trending at close to double the value of apartments at $550,000 in Q1 2025 House prices grew 0 3% from a quarter ago but were down 1 3% over the year Over the same quarter, apartments fell by 3.2% and by 3.7% in the past year
Change in Median Prices
Melbourne
Source: McGrath Research, APM
Price Outlook +1%
Looking ahead, McGrath Research anticipates residential property prices to increase by 1% by the end of 2025, followed by a stronger 4% rise in 2026 This projection of recovery reflects lowered interest rates and improving consumer confidence, suggesting an uplift in prices housing market over the next two years
Forecast for Median Prices
Melbourne
Source: McGrath Research
Source: McGrath Research, APM
Residential Rents Update
Melbourne residential rental vacancy was recorded at 2 5% in Q1 2025, rising 30 bps in the quarter and overall, 10 bps higher over the past year. Generally, 3% vacancy is considered a balanced market between rental supply and demand Below this benchmark is considered to be an undersupplied pool of rental homes. Changes in rental vacancy can have a significant impact on the residential property market, influencing both rental prices and property values.
Change in Residential Rental Vacancy
Source: McGrath Research REINSW
Yield
+20 bps
Melbourne residential gross rental yields rose 20 bps in the Q1 2025 quarter to be 4 49%, while this was 33 bps higher than a year ago Apartment yields (5 83%) consistently outperform house yields (3 86%) in most markets House yields rose 12 bps in Q1 2025 and increased by 30 bps over the past year, while apartment yields were 36 bps higher in this past quarter and 38 higher from a year ago Gross rental yields are a good initial measure of comparing the return of a property investment before expenses are deducted A range of 4 00% to 5 00% is considered good for many properties located in a capital city, while below this, may indicate high property prices relative to rent, or low rental demand
Change in Gross Rental Yield
Melbourne
Source: McGrath Research APM
Source: McGrath Research, APM
Residential Rents Update
Median Weekly Rent
Returning migration is keeping rents elevated across Melbourne. Residential rents rose 1.8% in Q1 2025, while rents increased by 2 7% over the past year, to stand at $580 per week Median weekly house rents were $5 higher than apartments in Q1 2025, remaining stable at $580 per week, with 1 8% growth over the past year Apartment weekly rents, at $575, rose 4 5% in Q1 2025 and in the past year by 4 5%
Change in Median Weekly Rents
Melbourne
Source: McGrath Research
Rental Outlook
While Melbourne continues to experience solid population growth and delayed new housing completions, McGrath Research forecast sustained upward pressure on rents of 4% at the end of 2025, with a further 4% rental growth likely in 2026
Forecast for Median Rents
Melbourne
Source: McGrath Research,
Source: McGrath Research
Melbourne Melbourne refers to the Greater Capital City Statistical Area or ‘Greater Melbourne’ as defined by the Australian Bureau of Statistics
