Melbourne Economic Update – February 2026

Melbourne Property Market: Balanced Market Conditions

Melbourne’s property market delivered a better-than-expected performance in 2025, but momentum has clearly moderated heading into 2026. After a year marked by uneven monthly growth, dwelling prices finished up 5% annually, a solid outcome in historical terms despite a softer start and finish.

Price movements throughout 2025 closely tracked shifts in interest rate expectations. Monthly growth strengthened following rate cuts early in the year, particularly in March, May, September and October, before slowing sharply as the outlook for further cuts faded. By December, prices fell modestly, and January 2026 recorded only marginal growth.

While Melbourne outperformed expectations last year, rising interest rates and lingering oversupply are now constraining further upside.

Prices Remain Subdued But Affordable

Melbourne’s relatively lower median house prices compared with other capital cities continue to ease affordability pressures. The median house price reached $827,000 in 2025, with January’s increase adding just $700.

If current conditions persist, price growth is expected to remain modest through 2026, with projections suggesting the median could rise by only around $5,000 by mid-year. For first-home buyers, this subdued environment reduces urgency and creates a rare window to enter the market without intense competition.

Auction Clearance Rates

Auction activity tells a clear story of a market transitioning. Throughout the second half of 2025, auction volumes rose sharply, peaking in late October, while clearance rates held steady near 70%. This indicated that buyer demand was absorbing some of the excess housing stock built up over recent years.

However, conditions softened toward year-end. Clearance rates fell to around 60% in December, even as listings remained elevated, signalling waning buyer confidence amid renewed interest rate uncertainty.

As 2026 begins, reduced competition may favour well-positioned buyers, though a sustained recovery in demand, particularly from first-home buyers, will be needed to lift auction outcomes.

Rental Market Remains Stable

Despite oversupply and migration volatility, Melbourne’s rental market remained remarkably stable throughout 2025. Vacancy rates held between 2.3% and 2.5%, while median house rents hovered around $580 per week.

This balance suggests limited pressure on renters to transition into homeownership, helping explain why price growth has remained contained even as borrowing conditions improved earlier in the year.

Increase In First-Home Buyer Activity

First-home buyer activity has steadily increased over the past two years, with the number of new loans in Victoria rising 27% since 2023. This trend is expected to strengthen further following the expansion of the First Home Guarantee Scheme, which now allows eligible buyers to enter the market with a 5% deposit and higher price caps.

First-home buyers play a critical role in absorbing excess stock, and their participation will be a key driver of market conditions in 2026.

What’s Next for Melbourne?

Melbourne’s housing market enters 2026 in a state of delicate balance, coming out of it’s recovery phase. Rising interest rate environments has created some buyer uncertainty, however, the investment fundamentals are continuing to show it’s green shoots. Population growth is stabilising, rental conditions are steady, and first-home buyer demand is improving.

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Disclaimer: This blog provides general information only and does not take into account individual objectives or financial circumstances. Please consider professional advice before making investment decisions.