Major advisory firm KPMG says Melbourne’s median house price will be back around the $1 million mark by the end of 2026.
Melbourne’s Recent Market Performance
Our state’s capital has been one of the worst-performing cities in recent times, with the current median house price giving ground to the likes of Perth, Adelaide, Brisbane, and the national average.
But KPMG has forecast a sharp turnaround in fortunes, rising 3.5 percent this year, followed by another 6 percent jump in 2026.
If that scenario eventuates, Melbourne’s median house price (not including units) will rise by around $85,000 from its current figure of $895,000 back up to former glory and around $1 million.
Factors Driving the Recovery
KPMG chief economist Dr. Brendan Rynne told realestate.com that while the growth might sound exciting, it would not be enough to return the median house price to its former peak.
“So it is really the start of a recovery, but it will be zero growth in the March quarter, and then growing for the remaining three quarters of this year,” he said.
A key driver of this house price growth for KPMG is an expected cut in interest rates before June, which looks increasingly likely given the latest inflation figures coming in at less than expected.
“And the impact of the land tax fallout, we are thinking is probably coming to an end, in that investors looking to get out in response probably already have,” Dr. Rynne added.
Melbourne’s Competitive Advantage
“Sydney will revert to leading the country’s housing market, and while Melbourne is currently experiencing a minor downturn in house prices, we expect prices to recover in 2025.
“Melbourne’s house prices are relatively more affordable compared to other capital cities, which will likely attract both interstate and overseas buyers,” Dr. Rynne said.
CoreLogic head of research Eliza Owen told Australian Financial Review that the big drop in house prices since the 2022 peak positioned Melbourne strongly in terms of affordability.
“It makes sense to me that the market could pick up in 2025,” she said.
“Net interstate migration made a strong recovery from big leakages in population during the earlier parts of the pandemic and has returned to balance.
“I think the affordability advantage is a big factor. Even though some investors are leaving the state, there are also more first-home buyers entering.”
Melbourne’s Potential as a Countercyclical Buy
Buying agency Propertybuyer’s chief executive Rich Harvey said Melbourne could indeed be the capital city to show the biggest upside in 2025-26.
“I think Melbourne is the best countercyclical buy,” he told AFR.
“It is the most undervalued capital city. You can buy apartments, almost below replacement cost, for example, in southern Melbourne, which is incredible.
“So I think Melbourne will be very strong next year and even more so in the following year.”
