Melbourne’s property market has fully recovered from the post-COVID downturn, reaching record-high values in September.
Two and a half years after the last peak in March 2022, the city’s housing market is showing renewed strength, with momentum building across both houses and units, from both investors and owner-occupiers alike.
Record growth across units and houses
The September 2025 PropTrack Home Price Index figures reveal annual home price growth of $34,500, contributing to a 3.4% annual rise overall. This uplift has pushed Melbourne’s median dwelling value to $839,000 in September.
Specifically for houses, the median value climbed to $999,000, reflecting annual growth of 3.8%. For units, the median value reached $619,000, after a 2.1% annual rise.
Drivers of market growth
Several factors are contributing to Melbourne’s continued strength, including investor activity, population trends and government incentives.
Lower interest rates and increased borrowing capacity
Recent reductions in interest rates have boosted borrowing power, allowing buyers to access higher-value properties while keeping mortgage repayments manageable. This has increased competition for both owner-occupier and investment properties, contributing to the market’s upward momentum.
Investors returning despite legislative pressures
Investor activity is rebounding despite previous legislative pressures, including hikes to land tax and compliance costs.
The Property Investment Professionals of Australia (PIPA) 2025 Annual Property Investor Sentiment Survey found nearly 60% of investors believe the next 12 months are a good time to invest in residential property, up from 45.7% last year and comparable to the 62% recorded in 2021.
Melbourne remains the top choice for investors, with 41% naming it as the best place to buy right now – up strongly from 26.3% last year.
The PIPA research found that the main factors driving investment are clear: long-term capital growth prospects, population growth and the appeal of major capital cities.
Increase in first home buyers
First home buyers are re-entering the market, supported by the Australian Government’s expanded 5% Deposit Scheme. Previously known as the Home Guarantee Scheme, it now offers unlimited places, higher property price caps and no income restrictions, making it easier for more Australians to buy a home.
The Scheme allows first home buyers to purchase a home with as little as a 5% deposit, while single parents or legal guardians can enter the market with just 2%, all without paying Lenders Mortgage Insurance.
In Melbourne, eligible buyers can now access the Scheme for properties up to $950,000.
By increasing borrowing capacity and giving first home buyers access to properties they might otherwise struggle to afford, the Scheme is adding to demand in Melbourne’s competitive market. Combined with lower interest rates and renewed buyer confidence, it will likely help sustain upward pressure on prices and support the city’s overall growth trajectory.
Population growth
Melbourne continues to experience strong population growth, which is helping to drive housing demand across the city and surrounding regions. Between March 2024 and March 2025, Victoria recorded a population increase of 124,600 people, the highest among all states, according to the Australian Bureau of Statistics (ABS). Of this, 75.0% was made up of overseas migrants.
This growth is fueling demand for housing, particularly in Melbourne, where much of the state’s population growth is concentrated.
Relative affordability
Buyers are attracted to Melbourne because, relative to other capital cities, property prices remain competitive. As the table below shows, PropTrack’s home price index for September had Melbourne’s median dwelling value sixth on the list of capitals, behind Sydney, Brisbane, Perth, Adelaide and the ACT.
This relative affordability is drawing buyers back to the market and encouraging existing homeowners to upgrade.
Limited supply
The supply of both new and existing homes to Melbourne’s market is not keeping up with the increasing levels of demand.
In the new homes sector, ABS data shows that dwelling approvals have slowed. In August, just 3,857 homes were approved across the state, down 17% from the same time last year.
It’s also important to note that an approved dwelling does not always result in a completed home, as projects can be delayed, altered or cancelled. As a result, the actual supply of new homes coming onto the market is expected to be even lower than the approval figures suggest.
For buyers looking for existing homes, the numbers are also low. According to SQM Research, total listings available for sale in Melbourne in September slumped to just over 37,000, 5.9% lower than a year earlier.
This persistent imbalance between supply and demand is a key factor sustaining high price growth. With fewer properties available, buyers face stronger competition for each home, pushing prices upward.
As a result, low supply combined with strong population growth, increased borrowing capacity and buyer activity continues to underpin Melbourne’s record-high property values.
Market outlook
These factors are expected to continue driving property prices growth into 2026, building on the city’s record-high values.
Westpac projects a 10% increase in Melbourne's home prices in 2026, driven by sustained strong buyer confidence and low housing supply. This is the highest predicted growth of all capitals and above the expected national increase of 9%.
Similarly, KPMG has forecast that house prices will climb 6.6% in 2026 and units 7.1%. KPMG predicts the current drivers of upward momentum – including lower interest rates, population growth and relative affordability – will continue to impact Melbourne’s market next year.
These projections suggest that Melbourne will remain a market leader in 2026, with sustained price growth driven by strong demand, limited supply and renewed confidence among both buyers and investors. For many, the challenge will be securing the right finance in an increasingly competitive market.
Looking to buy or invest in Melbourne’s property market? Contact AXTON Finance, your trusted mortgage broker in Melbourne, can help you navigate competition, maximise your borrowing power and achieve your property goals. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch today.