Melbourne’s property market has entrenched further into its downturn phase through May, with revised data revealing that dwelling prices fell 0.8% in both April and May. This consecutive drop represents a cumulative loss of over $20,000 in median house value since January, indicating that higher borrowing costs are firmly weighing on demand.

While prices continue to trend lower, granular data suggests the pace of deterioration may finally be stabilising rather than accelerating further, with weekly declines holding steady around a four-week average of -0.2%.

The structural shift is highly evident in the auction market, where clearance rates have slid into the low-to-mid 50% range. Because weekly auction volumes remain relatively elevated at 800 to 1,000 properties, the weakness reflects softer buyer demand and a persistent oversupply that the market is currently struggling to absorb.

In contrast, Melbourne’s rental market remains remarkably balanced compared to the severe shortages seen interstate. Vacancy rates have fluctuated within a stable 2.4% to 2.6% equilibrium range, supporting modest, sustainable rental growth up to a median of $590 per week.

The near-term outlook remains complex. Victoria’s unemployment rate has climbed to 4.8% – the highest among the major states – while underlying inflation pressures remain sticky. However, this cyclical correction is opening doors; financially secure first-home buyers are leveraging softer prices, suggesting that for long-term investors, this orderly downturn is increasingly shaping up as a premium counter-cyclical entry point.

Prepared by Ryan Brierty, Chief Economist, Follio.