For most of the past year, Melbourne has sat quietly in the shadow of Perth and Brisbane. While those two cities posted some of the strongest capital growth in the country, Melbourne’s median dwelling value has actually gone backwards, now sitting below where it was at its March 2022 high. It’s the kind of number that makes headlines about a “struggling” market — but numbers rarely tell the whole story on their own. Here’s our take, based on what we’re seeing across our Perth and Melbourne client base, on whether Melbourne is undervalued right now, and what that might mean if you’re thinking about buying.
What the Numbers Actually Show
Melbourne’s median dwelling value fell 0.8% in May and now sits 3.2% below its March 2022 peak, with growth of just 0.5% over the past year. Compare that to Perth, where values are up 25.8% over the same 12 months and sitting at a fresh record high near $1.05 million, or Brisbane, up 19.1% annually to a median of roughly $1.13 million. The gap in annual growth between Perth and Melbourne has widened to around 25 percentage points — one of the largest divergences between two capital cities in recent memory.
Sydney isn’t immune either — values there fell 0.9% in May and sit 2.1% below their own November 2025 peak, despite Sydney remaining the most expensive capital by a wide margin at a median north of $1.28 million. Melbourne’s affordability gap to Sydney has become one of the widest on record: buyers purchasing a median house in Sydney now need roughly $70,000 more in annual household income than an equivalent Melbourne buyer. That’s not a small gap — it’s the kind of number that changes where people choose to live and buy
How Melbourne Compares Across the Capitals
Put side by side, the divergence between Australia’s capital cities right now is stark:
- Sydney — median dwelling value around $1.28 million, down 0.9% in May and sitting 2.1% below its November 2025 peak. Still the most expensive capital by a wide margin.
- Melbourne — median dwelling value around $826,000, down 0.8% in May and 3.2% below its March 2022 high, with growth of just 0.5% over the past year.
- Brisbane — median dwelling value around $1.13 million, up 19.1% over the past year, though momentum has clearly slowed from earlier in 2026.
- Perth — median dwelling value around $1.05 million, up 25.8% over the past year and still setting fresh records.
What stands out isn’t just that Melbourne is behind — it’s how far behind. A 25 percentage point gap in annual growth between Perth and Melbourne is enormous by historical standards, and gaps that wide have tended not to persist indefinitely. Markets rotate, and when one city has run this much harder than another for this long, the conversation naturally turns to whether the laggard is due for its turn.
Why Melbourne Has Slipped
A few things have combined to soften Melbourne specifically:
- Three cash rate rises through the first half of 2026 hit affordability nationally, but Melbourne’s larger average loan sizes meant the impact showed up quickly in buyer behaviour.
- Listing volumes have stayed comparatively high, giving buyers more choice and less urgency — the opposite of the tight-supply story currently playing out in Perth and Brisbane.
- A portion of investor demand has rotated toward Perth and Brisbane, chasing stronger rental yields and capital growth — a trend we’re seeing directly in conversations with our own Melbourne-based clients (more on that in our piece on interstate investor activity).
- Recent changes to investment property tax settings at a Federal level have dampened investor confidence more broadly, and Melbourne’s larger apartment stock has felt that shift more than markets weighted toward houses.
None of this points to a structural problem with Melbourne. It looks more like a market catching its breath while attention temporarily sits elsewhere.
The Case for Undervaluation
Property cycles rarely move in a straight line, and cities that lag for a period have a track record of catching up once sentiment shifts. A few reasons we think Melbourne deserves a second look:
- Affordability relative to Sydney has rarely been this favourable, which historically draws buyers who’ve been priced out of Sydney and can no longer justify the premium.
- Population growth in Victoria remains solid, and household formation doesn’t stop just because prices pause.
- Rental vacancy in Melbourne remains tight enough that landlords aren’t struggling to find tenants — this is a softening in prices, not in underlying demand for housing.
- Over a longer horizon, Melbourne has consistently been one of the most resilient capital city markets in the country, supported by a diverse economy that isn’t as reliant on any single industry as Perth’s resource-linked growth or Brisbane’s population-driven surge.
Our view: This is our opinion based on the patterns we’re watching across the desk, not a prediction of when or how quickly Melbourne turns. Markets can stay soft for longer than anyone expects, and a past cycle catching up is never a guarantee — it’s a pattern worth weighing, not a promise.
What This Means If You’re Thinking About Buying
For owner-occupiers, a softer market can mean less competition at inspections and more room to negotiate — both of which matter more day to day than trying to pick the exact bottom of the cycle.
For investors, the maths shifts slightly: a lower entry price combined with steady rental demand can support reasonable yields, even if capital growth takes longer to show up than it has in Perth over the past year.
Where this gets tactical is on the finance side. With borrowing capacity tighter across the board following the 2026 rate rises, working out what you can actually borrow today — rather than what you could have borrowed eighteen months ago — should be the first step, not the last, before you start looking seriously.
What we’re seeing: We recently worked with a Melbourne-based client who assumed their borrowing power hadn’t changed since they last checked in 2024. Once we ran the numbers under current lending criteria, their capacity had dropped by more than 10%, which reshaped the price range they were realistically searching in. Better to find that out before making an offer than after.
Frequently Asked Questions
Is Melbourne’s property market crashing?
No. A pullback of a few percent from a cyclical peak is a normal market adjustment, not a crash. Melbourne’s median dwelling value remains well above where it was five years ago, and rental demand hasn’t softened alongside prices.
Should I wait for prices to fall further before buying in Melbourne?
Trying to time the exact bottom is close to impossible, and rents keep rising while you wait. For owner-occupiers especially, buying when you’re financially ready tends to outperform waiting for a signal that may never arrive.
Is now a good time for investors to buy in Melbourne?
It depends on your strategy and timeframe. Softer prices combined with steady rental demand can work in an investor’s favour, but it’s worth stress-testing the numbers against a longer holding period rather than expecting fast capital growth like Perth has seen.
How does financing differ in a softer market compared to a rising one?
Lenders assess the same serviceability criteria regardless of market direction, but a softer market can give buyers more room to negotiate on price, which changes how much finance is actually required relative to what you’ve been pre-approved for.
What’s the risk of buying now if Melbourne keeps softening for another year?
For owner-occupiers planning to hold long term, short-term price movement matters far less than it feels like it does in the moment — you’re not realising a loss unless you sell. For investors with a shorter timeframe, it’s a real risk worth factoring in, which is part of why we’d usually model a longer holding period into the numbers before recommending Melbourne for a fast-turnaround strategy.
The Bottom Line
We don’t think Melbourne is broken — we think it’s paused, and the case for it being undervalued relative to its long-term fundamentals is a reasonable one. Whether that’s the right call for your specific situation depends on your goals, timeframe and borrowing position, which is exactly the conversation worth having before you start looking. Markets like this reward people who’ve done the finance homework before they need it, not after they’ve found the property they want.
Curious whether the numbers actually stack up for you in Melbourne right now? Let’s run your borrowing capacity and talk through what a realistic price range looks like today.