Melbourne’s housing market is gaining momentum in 2025, with outer suburbs leading the way in growth and demand.
The latest data from Cotality’s (formerly CoreLogic’s) May 2025 home value index shows the city’s market rose modestly between April and May – house prices were up 0.5%, while units grew 0.4%.
While not rapid growth, it’s a meaningful sign of recovery after a flat two-year stretch. So far this year, house prices have risen 1.4%, while units have grown 0.8%.
This steady uptick reflects improving buyer sentiment, helped by recent Reserve Bank of Australia (RBA) rate cuts and more accessible borrowing conditions. The median Melbourne house is now valued at $939,965, ranking fourth behind Sydney, Brisbane and Canberra. A median-priced unit costs $614,689, the third highest behind Sydney and Brisbane.
Despite this rebound, prices remain 4.2% below their March 2022 peak – offering potential value for buyers looking to enter or re-enter the market.
In regional Victoria, the picture is similar. House values grew 0.6% between April and May, while units rose 0.9%. Year-to-date, house prices are up 1.8% and units 0.7%.
Outer suburbs lead the way
The stronger performance of outer suburban areas is a key trend in this recovery. As the Cotality map below shows, 38.0% of suburbs located 20km or more from the city’s CBD recorded growth, with locations like Hume, Frankston and Casey emerging as standout performers.
By comparison, only 4.0% of suburbs within 5km of the CBD saw a rise in dwelling values.
This shift reflects both current affordability and strong long-term growth potential, especially as infrastructure and planning changes reshape the city’s outer suburbs. Major infrastructure projects like the Suburban Rail Loop (SRL) are highlighting potential locations for growth. The SRL East will link Cheltenham, Clayton and Box Hill, making outer locations far more connected and desirable.
At the same time, the state government’s ‘Train and Tram Zone’ plans aim to unlock more than 300,000 new homes around centrally located zones by 2051. These ‘activity centres’ will streamline planning controls to enable higher-density housing close to train stations and tram corridors, particularly in high-growth outer areas.
These policies are likely giving buyers greater confidence that today’s affordable suburb could be tomorrow’s hotspots.
Factors influencing Melbourne’s market
Several factors are contributing to Melbourne’s growth:
- Interest rates: The RBA’s rate cuts in February and May have made borrowing more accessible. And with the potential for more cuts later this year, buyer confidence is likely to keep building.
- Supply constraints: Despite consistently outperforming other states in building completions, Victoria’s housing supply lags behind demand, due largely to the state’s strong population growth. This imbalance between supply and demand is putting upward pressure on prices.
- Investor confidence: After a period where investors had lost confidence in Melbourne, that appears to have shifted. As the graph below shows, the number of new home loan commitments to investors in Victoria has risen steadily since June 2023, according to the Australian Bureau of Statistics.
Investor home loans were up 11.5% in the March 2025 quarter compared to the same time last year. In contrast, national investor numbers rose just 8.8% over the same period.
Post-election confidence, strong migration and the perception that Melbourne is undervalued are all contributing to the rebound. In fact, Australian Property Investor Magazine’s Q1 2025 sentiment report found that 19% of investors rated Victoria as offering the best prospects – second only to Queensland.
Looking ahead
Many analysts anticipate that Melbourne’s housing market will continue to experience steady growth. Projections for home values in 2025 range from 3-5% growth predicted by Domain to 2-6% increase expected by SQM Research.
With immigration surging and infrastructure development adding positive sentiment, Melbourne’s long-term potential remains strong. Recent PropTrack analysis found that house prices in the city could climb 17% over the next five years, reaching a median value of $1.001 million by 2030.
What does this mean for buyers?
Today’s market presents a potential window of opportunity. Prices are rising, but still below peak – giving buyers the chance to act before further gains.
Buyers looking to upgrade or invest can benefit from the improved borrowing conditions driven by both the recent and expected rate cuts, which reduce the cost of finance and increase borrowing capacity.
Additionally, for those willing to look beyond the inner city, the city’s outer suburbs could offer a strategic chance to build equity in a market set for steady growth over the coming years.
An experienced mortgage broker in Melbourne can help you find the right loan, maximise your borrowing capacity and simplify the process. If you’re an investor, a specialist investment property mortgage broker in Melbourne can provide valuable guidance tailored to your strategy.
Thinking about buying your next home or investment property? Reach out to Axton Finance, a skilled mortgage broker in Melbourne, for expert advice and personalised loan options that put you ahead in Melbourne’s competitive market. Email us at [email protected] or click here to get in touch.
