If 2024 was the reset button for the Melbourne housing market, 2025 is looking like the year of recovery.
With the first interest rate cut since November 2020 having come through in 2025, the mood has shifted.
But interest rates are just one piece of the Melbourne property puzzle.
This data-driven report from Melbourne’s top Buyers Advocates looks at 25 stats that will shape Melbourne’s housing market in 2025, for homebuyers, investors and industry professionals.
We’ve broken up the statistics across various market facets and factors for easy navigation.
House Prices & Growth
#1 Median House Price: $1.04 million
The median house price has stabilised at this all-time high and grew by 0.6% in 2024. In other words – growth has slowed but home ownership in Melbourne is still hard to achieve for many buyers.
#2 Median Unit Price: $577,000
Apartments grew by 1.9% year on year, outpacing houses as buyers. No surprise here, really, given the greater affordability of this stock.
#3 National Ranking: 2nd most expensive market in Australia
Melbourne is the 2nd most expensive property market in Australia behind Sydney, but the gap with Brisbane (now in the million-dollar club) has never been smaller since 2009.
#4 Quarterly Growth Pattern: 70% of suburbs up
After the year of two halves in 2024 where the first half outperformed the second half, most Melbourne suburbs are now up for the quarter.
#5 Premium Suburbs: 25 suburbs grew by $100,000+ in value
Despite the overall soft market, 25 Melbourne suburbs had a median house price increase of over $100,000 in 2024. Some of the prestige areas like Deepdene grew by $602,000 (20% growth).
Rental Market Crisis
#6 Vacancy Rate: 1.1% in January 2025
Melbourne’s vacancy rate has hit extreme lows, down from 2% in November 2024. A balanced market has a vacancy rate of around 3%.
#7 Average Weekly Rent: $640
This is a 4.1% increase in 2024, down from the 11% surge in 2023 but still growing faster than wages and inflation.
#8 January 2025 Rent Growth: 1.7% in a month
The year started with big monthly rent increases, showing the rental market is still under pressure.
#9 Rental Yield: 3.7%
Gross rental yields have improved from 3.5% last year, but Melbourne still trails behind Brisbane and Adelaide for investment returns.
#10 Rental Affordability: 33% of income spent on rent
The median Melbourne household now spends one-third of their income on rent—the highest proportion in nearly two decades.
Affordability Challenges
#11 Price-to-Income Ratio
9.8 Melbourne households need almost ten years’ worth of income to afford a median-priced home, making it one of the world’s 10 least affordable cities.
#12 Mortgage Repayment Burden: 40% of take-home pay
New homebuyers spend about 40% of their disposable income on mortgage repayments.
#13 Interest Payment Share: 9.75% of disposable income
The RBA estimates households will pay almost 10% of their disposable income on interest payments—double what it was in 2020.
#14 First Home Buyer Deposit: Over $200,000
The average deposit for a Melbourne home is over $200,000, requiring more than seven years of saving for a young couple. Our team can help first-home buyers get the best bang for their buck.
#15 Deposit Saving Timeline: 7+ years
Compared to 4-5 years a decade ago, first-home buyers now need significantly longer to save for a deposit.
Interest Rates and Market Sentiment
#16 Interest Rate Movement: First cut in over four years
February 2025 saw the first rate cut since November 2020, changing market psychology even before it happened.
#17 Growth Forecast: 3-4% price growth expected
A Reuters poll of 16 analysts expect 3-4% growth in 2025, with some like SQM Research’s Louis Christopher predicting 6-10%.
#18 Bank Predictions: Multiple rate cuts expected
All “Big Four” banks expect multiple rate cuts in 2025, which could push growth above the 4.3% national average in 2024.
#19 Auction Clearance Rates: Above 70%
After dipping to 61-63% in November 2024, clearance rates have bounced back above 70% in early 2025. Industry analysis shows improved auction performance is directly linked to rate cut expectations, with more bidders per auction.
#20 Auctions: 800-1,000 per week
Melbourne auction numbers are strong, with a peak of 1,467 in a single week last year. The robust supply of auctioned properties, combined with rising clearance rates, suggests a good balance between buyer demand and seller confidence.
Supply and Demand
#21 Population Growth: 183,959 (2.72%)
Victoria added 184,000 residents in the year to March 2024—the highest growth rate of any state—with Greater Melbourne now at 5.8 million.
#22 Immigration: 83% of growth from overseas
International arrivals are driving housing demand, especially in the rental market.
#23 Housing Supply: Decade-low completions
New home completions are at a 10-year low, with dwelling approvals 15% below the 10-year average.
#24 New Approvals: 16,000 across all Melbourne councils
The shortage is most acute in affordable housing segments.
#25 Long-term Housing Need: 1.5 million by 2050
The Victorian government estimates Melbourne needs 1.5 million new homes by 2050, with current construction rates nowhere near achieving this goal.
Investors Return to the Market
Investors have made a huge comeback in Melbourne’s real estate market.
The numbers tell an interesting story. Investor loan agreements rose 26.3% year over year to September 2024, which shows that people are once again confident in real estate.
By the end of the year, 32% of all housing loans were to investors. This was a big jump from the low of 25% during the pandemic when many owners left the market.
What’s making this comeback happen?
Record-high rents and the chance that prices will rise as interest rates go down have made this a great time to buy for buyers who are interested in return. We’ve seen a lot of activity in the middle-ring suburbs of Melbourne, where value opportunities remain even though the market as a whole is recovering.
The story about yield needs extra care.
Melbourne has seen the highest gross rental returns in years, at 3.7%. This is because rental growth has been faster than capital value growth.
Apartment investors who are ready to look in the middle-ring suburbs can now get yields of more than 4%.
Compared to the low yields that characterised the market during the last boom cycle, these numbers show a big change.
However, not all investors are benefiting from this rebound in the same way.
There is a clear split in the types of investors we see.
Experienced investors who have a lot of stocks and other investments are carefully adding to their portfolios.
On the other hand, some owners who have too much debt and can no longer afford land taxes and other rising outgoings associated with their investment/s are still leaving the market.
Most of the time, these sales involve homes that were bought at their highest prices and don’t have much of a protection against interest rate hikes.
When their fixed-rate terms end and their payments go back to the current variable rates, they can’t stay in a negative cash flow situation any longer. Smart buyers can sometimes find good deals at these driven sales, but they still need to do a lot of research first.
Investors’ choices about where they want to put their money have also changed a lot.
In past investor rounds, there was a lot of activity in apartment markets in the city centre. But today’s investors are more selective. Most of the investor capital is going to established areas that have high rental demand, are close to job centres, and don’t have a lot of new homes on the market.
This is a more long-lasting way to spend because it is based on fundamental drivers instead of speculative sentiment.
The lending situation continues to favour investors who have a lot of equity and can pay back the loan.
Even though interest rates have changed recently, banks have kept their assessment rates pretty low to make sure that new investment loans pass strict stress-testing criteria. This disciplined method to lending should help stop investors from speculating too much, which happened during previous market cycles.
Activity Centre Plans: The Government’s Housing Strategy
Activity Centre Plans have long been the State Government’s response to addressing Melbourne’s housing crisis.
The plan, at least on paper, is relatively straightforward.
60,000 new homes. Ten years. Ten suburban hubs.
In Broadmeadows, Camberwell Junction, Chadstone, Epping, Frankston, Moorabbin, Niddrie, North Essendon, Preston, and Ringwood, developers will have access to much more streamlined planning approvals and greater height limits to tackle the Victorian capital’s housing shortage.
The hubs, mostly selected for their proximity to transport, shops, schools, services, and parks, are in some of the city’s most in-demand and/or growing inner and outer suburbs.
While existing residents have voiced their dissatisfaction with the plans, the Allan Government insists that this is how the residential housing crisis will be resolved.
Critics of the plan argue that many of the suburban hubs chosen are already struggling to keep up with demand for services, such as schools and transport, and question just how much affordable housing can be created in these areas where land acquisition costs are high, and construction costs are higher.
The government has committed to 13,300 new social and affordable homes as part of its broader housing package, with the specific breakdown within Activity Centres yet to be determined.
Housing advocates, including the Community Housing Industry Association, are calling for at least 16.5% of all new homes in these areas to be designated as social or affordable housing, equating to 10,000 of the 60,000 homes.
The Key Points: What You Need to Know About Activity Centres
- Implementation Timeline: Planning controls for the 10 pilot activity centres will be gazetted and become enforceable in March 2025.
- Second Phase Expansion: The program is expanding to include 50 additional centres, with the first 25 already identified along key transport corridors.
- Housing Yield Projection: The expanded program aims to deliver over 300,000 new homes by 2051, well beyond the initial 60,000 target.
- Selection Criteria: Centres were chosen based on transport access, proximity to jobs, market viability, and environmental resilience.
- Development Zones: Core areas in larger centres like Ringwood and Frankston will permit buildings up to 20 storeys, with graduated height limits in surrounding areas.
- Planning Instruments: The program introduces two key tools – Built Form Overlay (BFO) for core areas and Housing Choice and Transport Zone (HCTZ) for surrounding catchments.
- Heritage Protection: Existing heritage overlays remain untouched, ensuring historically significant properties are protected from inappropriate development.
- Tax Implications: Most residential landowners benefit from Windfall Gains Tax exemptions, though property values and rates may increase over time.
- Infrastructure Focus: Revised plans include funding mechanisms for improved open spaces, tree planting, and infrastructure upgrades alongside housing growth.
- Community Response: The government has reviewed over 10,000 community submissions, with many highlighting concerns about infrastructure capacity and neighborhood character.
Suburb Spotlight: Performers and Trends
While the market is flat overall, some suburbs are outperforming:
- Princes Hill: Up 24.5% to $1.83 million
- North Warrandyte: Up 23.1% to $1.48 million
- Park Orchards: Up 20.2% to $2.33 million
- Deepdene: Up 20.0% (plus $602,000) to $3.61 million
- Portsea: Up 14.5% to $3.35 million
Even affordable areas are growing, with Brooklyn (inner-west) up 17.8% to $803,000 and Yarra Glen (outer northeast) into the mid-$900,000s. Middle-ring family-friendly suburbs (10-20km from CBD) in the east and southeast have consistently been in demand. Areas like Strathmore (+15.3%), Watsonia (+14.9%) and Cheltenham (+6.8% quarterly) are popular due to good schools, transport options and larger block sizes.
Conversely, inner-city high-rise apartment markets have underperformed, with some CBD and Docklands properties still below pre-pandemic prices due to oversupply and weak investor interest.
2025 Outlook: Balanced Opportunities
So, what do we take from all of these numbers?
Realistically, the Melbourne market is at something of a crossroads in 2025, but there is both hope in the potential lowering of interest rates throughout the year and some opportunities to be had for savvy investors.
Population growth has surged while housing supply remains critically low. Rental vacancies? Nearly non-existent.
Yet buyers aren’t rushing in with abandon.
To be honest, perhaps many buyers simply can’t afford to rush in with abandon.
Affordability constraints temper bidding enthusiasm despite February’s interest cut, which expanded the borrowing capacity for many clients.
First-home buyers hovering below serviceability thresholds are finding relief. Some can suddenly access an additional $50,000 with unchanged monthly repayments.
However, Melbourne’s stubborn price-to-income ratio still places many properties beyond reach.
Investors have noticeably shifted their outlook, driven by record-high rents and improving yields. Smart money recognizes this dual advantage, though disciplined cash flow modeling remains essential.
The developer segment shows promising signs too. Lower holding costs coupled with the government’s Activity Centre Plans have revitalized shelved projects, though completions remain 18-24 months away.
This market rewards patient, strategic decision-making rather than FOMO-driven purchases. The foundations for sustainable appreciation are firmly established.
Need help securing your next purchase? Contact our expert buyers advocates in Melbourne to help you win in the property market.
