Melbourne’s premium property market is bearing the brunt of the city’s current housing downturn.
While falling property values may be unwelcome news for existing homeowners, they could create significant opportunities for those looking to move into a more expensive family home. Properties that were previously out of reach may now be worth another look, particularly if sellers are becoming more willing to negotiate.
However, a falling market also brings risks. Understanding what’s driving the downturn, and whether an individual property represents good value, is essential before committing to a purchase.
This article is general information only and does not constitute financial, legal or tax advice. We recommend seeking advice from a qualified accountant and solicitor before making any decisions.
Melbourne’s premium houses have fallen more than 10% from their peak
According to Cotality, Melbourne’s upper-quartile house values were 10.5% below their cyclical peak by the end of August 2026. Among the major capitals, only Sydney recorded a larger decline, at 10.7%.
The gap between Melbourne’s premium and more affordable houses is wider than in any other capital. Cotality found that the cumulative decline in upper-quartile house values was 6.6 percentage points greater than the decline in lower-quartile values, ahead of Sydney at 5.3 percentage points. In Brisbane, Adelaide and Perth, the difference was less than one percentage point.
Melbourne’s premium unit market has also fallen further than the more affordable end, with upper-quartile unit values around 6% below their peak. The gap between the top and bottom of the unit market was 4.9 percentage points. That is smaller than for houses, as lower entry prices have helped support demand for units.
These figures suggest that the downturn has affected Melbourne’s higher-priced properties disproportionately.
But it’s also important to remember that the 10.5% figure measures the change from the market’s previous peak. It doesn’t mean every premium Melbourne home has fallen by that amount, or that buyers can expect a 10.5% discount on any property they inspect.
Why are expensive homes falling faster?
Melbourne’s premium houses were among the first homes in Australia to start falling. Cotality noted that early in the cycle, falling values were largely confined to higher-priced properties in Sydney, Melbourne and Canberra.
The downturn has since spread to Brisbane, Adelaide and Perth. In those cities, falls have been spread more evenly across price points because the downturn arrived later. In Melbourne, the top end has simply had longer to fall.
Higher interest rates are part of the explanation. Buyers at the top end usually need the largest loans, so each rate rise takes more off what they can borrow. We looked at how rate rises have affected borrowing capacity in our article on the numbers behind upgrading in a falling market.
Buyer behaviour also plays a role. Many premium buyers are discretionary purchasers, such as families upgrading by choice rather than necessity. When confidence weakens, they can often afford to wait. Affordability pressures have also encouraged some buyers to reconsider their budgets or delay purchasing.
The result is a smaller pool of buyers able or willing to compete at certain price points, potentially putting pressure on sellers who need to secure a sale.
Are buyers gaining more negotiating power?
Falling property values can create opportunities, particularly when accompanied by weaker competition and longer selling times. There are signs that selling conditions have become more challenging across Australia’s capital cities.
In Melbourne, homes took a median of 43 days to sell over the three months to August, compared with 30 days a year earlier, according to Cotality.
Melbourne’s median vendor discount also increased from 3.0% to 3.9% over the same period. This measures the difference between a property’s original advertised price and its eventual selling price, suggesting sellers are having to make larger concessions to secure a sale.
Auction results point in the same direction, though Melbourne has held up better than most capitals. Melbourne’s final clearance rate was 54.2% in the week ending 20 September, the highest of any capital but also a significant 17.4 percentage points lower than a year ago (71.6%).
These figures cover the whole market rather than just the premium segment. Even so, they suggest buyers currently have more room to negotiate than during periods of intense competition.
That could be particularly helpful if you’re looking for a larger family home in one of Melbourne’s established, sought-after suburbs. However, opportunities will vary between suburbs and individual properties. A well-presented home in a desirable school catchment may still attract strong competition, even when the broader market is declining.
Will Melbourne’s premium market recover?
Looking at the current decline, it is natural to wonder whether buying into this market is a sound long-term plan. Property markets move in cycles, and premium homes have historically experienced periods of both stronger growth and sharper declines.
Being among the first to fall doesn’t necessarily mean premium homes will be the first to recover. Interest rates, buyer confidence, economic conditions and housing supply will all influence when Melbourne’s premium market stabilises and how quickly prices recover.
There’s no reliable way to predict the bottom of the market, and buyers who wait for further price falls could secure a better deal. But they also risk missing out if conditions improve sooner.
If you’re planning to stay in your next home for many years, short-term price movements may be less important than finding a suitable property at a price you can comfortably afford. Before committing, assess each property on its merits and compare recent sales.
Lower prices only help if you can still borrow
A cheaper premium home only helps if your borrowing capacity hasn’t fallen further. The Reserve Bank of Australia lifted the cash rate to 4.60% in September, its fourth increase this year. This has been passed on to borrowers by most lenders, impacting your monthly repayments.
Lenders also assess applications at a debt serviceability buffer above the actual loan rate. A larger loan is therefore tested against substantially higher hypothetical repayments. Even high-income households can find their limit lower than expected once an existing mortgage, school fees and other commitments are factored in.
You also need to consider how your budget would cope if rates rose again or your circumstances changed.
Explore your options with AXTON Finance
With premium property prices falling, now could be a good time to reconsider that larger family home or more desirable location you’ve had your eye on if your finances stack up.
At AXTON Finance, we can assess your borrowing capacity, review the equity in your existing home and help you work out what you can comfortably afford in the current market. With access to more than 30 lenders and a dedicated private banking team experienced in premium property lending, we can help you secure suitable finance for your next move.
This article is general information only and does not constitute financial, legal or tax advice. We recommend seeking advice from a qualified accountant and solicitor before making any decisions.
Thinking about upgrading to a premium Melbourne property? AXTON Finance can help you explore your borrowing options and finance your next move. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch.
