Melbourne Property News Monthly Wrap – January 2025
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What’s in store for Melbourne home sellers in 2025?
In Summer 2025 the economic landscape is changing. Over the last two years, most of Australia (except Melbourne) had home values increase generally by about 14%. But we’re now seeing a broad downturn in the national market. A gap has opened between income and borrowing capacity, impacted by rising living costs across the board.
Many interstate buyers bought into high mortgage payments, expecting it would be for the short term, and that interest rates would fall. But with lower interest rates slow to arrive, downward pressure is now hitting most State markets. So the rest of the country has finally got to where Melbourne has been for the last two years.
Interest rates likely to be cut
The RBA review will be on February 18. Most industry observers are predicting a cut. The Australian Securities Exchange figures has stated a 95% chance of a reduction in rates, from 4.35% to 4.10%.
What kind of trigger effect will interest rate cuts have?
When they finally come, rate cuts increase borrowing capacity, of course. Affordability improves and buyer confidence jumps. But there’s no guarantee minor rate reductions will boost home values and transaction activity this year. To begin with, at the very least, a rate cut should help end the incremental falls we’ve seen in Melbourne’s home values. But even after an initial rate cut (like 0.25%) many potential home buyers will still be cautious about stretching their budget to the max, because there’s so many cost of living increases hitting households right now.
After the first rate cut, industry commentators will start talking up the possibility of another cut. If the second cut does happen the market upswing will have much more momentum. Taking a step back and looking historically, two of Melbourne’s steepest market upswings (in home values) came with the rate cut periods after the GFC and after Covid.
KPMG are bullish about Melbourne
Although there are unknowns in the year ahead, economists KPMG predict Melbourne will go from one of Australia’s worst performing capitals over the last two years, to one of the best performing in 2025 and 2026.
KPMG is now predicting Melbourne house prices will lift 3.5% in 2025. They’re more bullish about 2026, calling a rise of 6%. With only Sydney outpacing us with a 7.8% rise.
Based on PropTrack’s latest $895,000 Melbourne median house value, that’s a $31,000 rise in 2025 and $55,580 rise in 2026.
So we are talking about a staggered recovery for Melbourne. It’s likely to be a long time before Melbourne reaches it’s previous property value highs. Because even with KPMG’s predicted rises in 2025 and 2026 it still doesn’t bring Melbourne values back to their former peak, post Covid.
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