Michael Yardney , Founder
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For the first time in nearly a year, Melbourne has something that could cautiously be described as good news. Values fell 0.7% in September — the tenth consecutive monthly decline, but also the smallest monthly fall since March.
That matters because Melbourne has spent this entire cycle as the market with no bottom in sight. Ten straight months of losses have left values 7.5% below the March 2022 record high, stripping roughly $64,000 from the median house price. A decelerating rate of decline is not a recovery. But in a month where Brisbane fell 1.5% and Sydney fell 1.4%, Melbourne’s 0.7% stands out as the mildest result among the mainland capitals outside Hobart.
The city remains unique in one respect that shapes everything else. Melbourne is not correcting from a recent peak — it is falling further below a high set four and a half years ago that it never managed to reclaim. Values sit 7.2% under the November cyclical high and 7.5% under March 2022. Two separate downturns, one shallow recovery between them, and no return to the benchmark.
Within the market, a clear split has opened between dwelling types. Apartment values have fallen 3.8% over the past twelve months against a 7.3% drop in house values — close to double the decline for houses. That gap almost certainly reflects affordability: as borrowing capacity contracts, the segment that remains financeable holds up better, and in Melbourne that is the apartment sector.
Melbourne Market Performance
Melbourne’s position in the national table has shifted. For most of this cycle it led the decline; in September it was among the more resilient capitals by monthly change, even as its cumulative loss remains one of the deepest in the country.
| Segment / Metric | Current Result | Trend & Context |
|---|---|---|
| Monthly Change (September) | -0.7% | 10th consecutive decline, but smallest since March |
| Position vs. March 2022 Peak | -7.5% | Approximately $64,000 off the median house price |
| Decline Since November High | -7.2% | Second cycle of losses without full recovery between |
| House Values (12 Months) | -7.3% | Nearly double the rate of decline in apartments |
| Apartment Values (12 Months) | -3.8% | Affordability advantage providing genuine protection |
| Home Sales Volume | -19.5% vs. year ago | Milder than Brisbane, Sydney or Perth |
Source: Cotality, October 2026
Melbourne’s Supply Position Is the Mildest in the Country
One statistic separates Melbourne from the markets now falling fastest, and it is worth dwelling on.
Melbourne’s advertised listings are approximately 10.8% higher than a year ago. Compare that with Perth at 60%, Brisbane at 55%, and Adelaide at 42%. Even Sydney, at 11.5%, is marginally higher. Among the capitals experiencing a significant correction, Melbourne has the smallest supply overhang in the country.
The reason is partly that Melbourne entered this downturn earlier than everywhere else. Vendors have had ten months to observe deteriorating conditions and decide against listing, and many have. Nationally, new listings are already running 9.2% below year-ago levels; Melbourne’s prolonged weakness has amplified that withdrawal locally.
Melbourne’s listings are up just 10.8% year-on-year against 60% in Perth and 55% in Brisbane — the markets that fell latest are now carrying the heaviest supply burden.
Sales activity has also contracted less sharply than elsewhere. Melbourne transactions are down 19.5% year-on-year, against 27% in Brisbane, 26.5% in Sydney and 24.2% in Perth. Weak, but not the collapse visible in the markets that boomed hardest.
Taken together, these numbers describe a market further through its correction than the others rather than one that has escaped it. Melbourne started falling first, has fallen longest, and now shows the earliest signs of the rate of decline easing.
Renters Are Quietly Rewriting the Demand Equation
The national rental market has turned a corner, and the mechanism behind it is unusual enough to warrant attention.
The vacancy rate climbed to 2.1% in September, the highest since January 2025 and a substantial move from February’s record low of 1.5%. It remains well under the pre-COVID decade average of 3.3%, but the trend has genuinely reversed.
What makes this notable is that it occurred while investment activity was falling sharply — a combination that should tighten rental supply rather than ease it. The likely driver is structural change on the demand side. With weekly rents up roughly $200 across five years and rental affordability at the worst level ever recorded, households are responding by consolidating. Larger share houses, multi-generational living, smaller dwellings further from the centre. Fewer separate tenancies means more empty properties, independent of supply.
Monthly rent growth slowed to 0.3% seasonally adjusted, the smallest increase since May 2025, with annual growth now at 5.5%.
| Rental & Investment Metric | Current Status & Trends |
|---|---|
| National Vacancy Rate | 2.1% — highest since January 2025, up from 1.5% in February |
| Monthly Rent Growth | 0.3% — smallest monthly increase since May 2025 |
| Annual Rent Growth | 5.5% — easing from earlier peaks |
| 5-Year Rent Increase | Approximately $200 per week above 2021 levels |
| National Gross Rental Yield | 3.85% — highest since August 2019 |
| Melbourne Advertised Listings | +10.8% vs. year ago — mildest increase among falling capitals |
Source: Cotality, October 2026
Gross yields nationally have reached 3.85%, the strongest since August 2019, and should continue rising while rents climb against falling values. Melbourne has historically carried the better yields among the large capitals, so local investors benefit disproportionately. The limitation is the same everywhere: high interest costs layered onto rising insurance, maintenance and management fees keep neutral cash flow out of reach for most new entrants.
The Rate Decision Landing on an Already-Weakened Market
The Reserve Bank has lifted the cash rate to its highest level in 15 years — and Melbourne receives that news ten months into a decline, with less capacity to absorb it than any other capital.
The historical parallel misleads. Rates were last here when household debt relative to income sat far lower. Today’s borrowers are considerably more sensitive to each increment of tightening, which means the same nominal rate exerts a heavier drag than it did a decade and a half ago.
The immediate effects are predictable: borrowing capacity shrinks, serviceability assessments tighten, existing mortgage holders face larger repayments. These compound with rising living costs and negative real income growth, narrowing both who can qualify for finance and how much they can borrow.
Melbourne apartments have fallen just 3.8% over twelve months against 7.3% for houses — for first home buyers, the apartment sector is where falling prices and preserved borrowing capacity currently intersect most favourably.
Affordability remains the binding constraint even after a 7.5% fall from peak. Purchasing power has improved only modestly relative to the scale of the preceding boom and the size of mortgage rate increases. Values are still high against household incomes, deposit requirements remain substantial, and deeply pessimistic sentiment continues to delay major financial commitments.
The federal budget’s tax changes add further pressure. Less favourable negative gearing and capital gains tax settings have reduced investor demand — a particular issue for Melbourne, which has historically carried one of the highest concentrations of investment property in the country.
Ten Months In, What Happens Next
Two structural supports continue to limit how far this can fall.
The labour market remains reasonably stable, protecting household income security and keeping mortgage arrears and forced sales contained. A sharper employment deterioration would shift the outlook significantly, but it is not present in current data.
New housing supply stays persistently short. High construction and infrastructure costs, capacity limits and challenging project economics continue to restrict completions. Even where approvals improve, the long development timelines mean any increase takes years to reach buyers — which supports values wherever advertised stock stays low, and Melbourne’s stock is lower than most.
The balance of risks remains tilted downward. Further declines are the most likely outcome while rates stay elevated and sentiment stays cautious. But Melbourne enters this phase differently from the rest: longest into the correction, mildest supply overhang, smallest monthly fall since March. If any capital is closer to finding a floor than the national picture suggests, it is this one.
