The Melbourne property market has seen strong growth over the past decade, with house prices more than doubling between 2012 and late 2021. However, the market has cooled slightly in 2022 as rising interest rates and cost-of-living pressures curb buyer demand.
Examining Historical Melbourne House Prices
According to CoreLogic home value data, Melbourne’s median house price has grown from $407,000 in 2012 to a peak of $916,000 in December 2021 – an increase of 125% over the decade.
Over the past 5 years (2017 to 2021), Melbourne house values grew by a robust annual rate of 5.4% per annum. This was largely driven by low interest rates, strong population growth, and undersupply in the market.
Key Drivers of Strong Growth Phase
- Low interest rates – The RBA cut rates to record lows of 0.1% during COVID, improving affordability. This motivated buyers to borrow more.
- Population growth – Melbourne saw rapid population growth pre-COVID, creating housing demand. Net overseas migration added over 110,000 people in 2018/19.
- Undersupply – Dwelling construction couldn’t keep pace with population growth. This mismatch between supply and demand put upwards pressure on prices.
However, these dynamics have shifted in 2022. Interest rates are rising quickly, overseas migration remains low, and affordability is decreasing. This has slowed the housing market.
Forecasting Future Melbourne House Price Changes
The growth phase has ended and forecasts suggest a gradual decline in values over 2023 and 2024. However, the market is expected to stabilise and recover in 2025.
2023 – Prices forecast to fall 6 to 10% as higher rates continue to dampen demand and cost-of-living pressures limit spending power.
2024 – A further 5 to 8% decline possible as economic headwinds remain. Immigration may pick up slightly.
2025 onwards – The market likely to stabilise and record modest growth thanks to improving affordability and more normal economic conditions.
Overall, while Melbourne house prices may correct 10-15% from late 2021 highs, the medium-term outlook remains positive. Population growth will pick up again and drive underlying demand. But growth trends are set to moderate from the strong gains recorded over the past decade.