If you have been following the property market over the past few months, you could be forgiven for thinking the outlook is almost entirely negative.
‘Downturn’, ‘correction’ and even ‘crash’ have become familiar words in property headlines as values fall and buyers become more cautious.
There is no doubt Melbourne’s market has softened. Cotality’s August data showed dwelling values fell 1.1% during the month. Melbourne values are now 6.8% below their March 2022 record high.
But those numbers are only part of the picture. Buyers and investors making decisions now also have lower entry prices, more properties to choose from and a rental market that remains tight.
So how should you read the Melbourne property market in 2026?
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.
Property downturns are part of the cycle
Falling property prices can feel significant when you are watching them month by month. If we look at previous cycles, however, we can see that the current downturn sits within a much longer pattern of growth and correction.
Domain analysed eight completed Australian housing downturns since 1995. The average downturn lasted around eight months and reduced combined capital house prices by 2.9%. By comparison, the average upswing lasted 2.8 years and delivered growth of 32.3%. In seven of those eight completed cycles, the upswing was both longer and larger than the downturn that followed.
That does not mean the current cycle will follow exactly the same path. Domain forecasts further falls, including a decline of up to 8% in Melbourne house prices over FY2027. But it does put today’s news cycle into some perspective.
Melbourne entered the downturn from a different starting point
Melbourne also entered the current downturn from a very different position to some of Australia’s strongest-performing markets. Cotality data showed Melbourne dwelling values actually fell 3.9% over the five years to August 2026. Over the same period, Brisbane values rose 64.1% and Perth values surged 79.7%.
Melbourne did not experience a similar boom. In fact, according to Cotality, Melbourne dwelling values in August were 4.7% lower than a year earlier and 6.8% below their March 2022 peak. At the same time, Brisbane values were still 10.8% higher over the year and only 2.7% below their May 2026 peak, while Perth remained 15.6% higher annually and 3.2% below its April peak.
Melbourne therefore has far less of the recent upswing to unwind. That does not prevent further price falls, but it is useful context when comparing Melbourne with markets that have risen much further in a relatively short period.
Buyers have more opportunities
The softer market is already changing the buying environment.
The first opportunity is lower entry points. With Melbourne dwelling values having fallen 4.7% over the past year, buyers are paying less for the same home than they would have 12 months ago.
Lower values also reduce the dollar amount required for a deposit. A 20% deposit on a $900,000 property, for example, is $20,000 less than on a $1 million property.
The second is more choice. SQM Research recorded 48,475 Melbourne listings in August, 22.0% higher than a year earlier. That means less competition and more time to do your due diligence.
The third is strong rental fundamentals for investors. Melbourne’s gross rental yield of 4.0% is the highest of the five largest capitals. For investors, rising rents and softer prices are a combination that has historically favoured patient buyers.
Sentiment is still genuinely weak
Of course, none of this means the gloomy headlines should simply be ignored. The market has definitely shifted, so the headlines do exist for a reason. The Westpac–Melbourne Institute Consumer Sentiment Index fell 5.2% to 84.4 in September, taking it back towards the deeply pessimistic levels recorded earlier in the year.
Housing sentiment, particularly, weakened. The ‘time to buy a dwelling’ index fell 10.7% to 85.5, although Victoria’s reading of 87 was stronger than Queensland at 79 and Western Australia at 71. Meanwhile, just 4.7% of consumers nominated real estate as the wisest place for savings, which Westpac described as near historic lows.
Further property price falls are also possible. That may create lower entry points for buyers now, but investors need to consider the possibility of weaker capital growth or further declines while they hold the property.
Interest rates are adding another layer of pressure. Higher rates reduce borrowing capacity and increase repayments for existing variable-rate borrowers, which could continue to weigh on property prices in the near term. Before the September meeting, Cotality estimated three increases had reduced the borrowing capacity of a median-income household by 7.0%, or more than $53,000.
However, current forecasts still suggest the rate cycle could turn in 2027, with economists expecting rate cuts to begin next year.
What does the market mean for your numbers?
A national forecast can’t tell you whether you can comfortably afford your next Melbourne property. Headline sentiment and scenario modelling are useful context. But whether current conditions create an opportunity for you depends on your income, existing debts, available equity, deposit and the way different lenders assess your application.
If you are considering upgrading or buying an investment property, it can be useful to run the numbers before deciding whether to buy now, wait or adjust your budget.
At AXTON Finance, we can look at your borrowing power, serviceability and loan structure across more than 30 lenders, so you can understand what the current market and higher interest rates mean for your plans.
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.
Want to know what today’s market means for your plans? Speak to the team at AXTON Finance today on 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch today.
