Melbourne tipped as standout performer in 2026 property market

Key Points

• Domain forecasts Melbourne median house prices reaching $1.17 million by end of 2026
• KPMG tips 6.6% house price growth and 7.1% unit growth — highest among capitals
• All-dwellings median sits at $828,249 as at 1 April 2026, up 3.4% annually
• Rental vacancy rate at 1.5%, well below the 2–2.5% balanced market benchmark
• Victoria recorded the largest state population increase in the year to September 2024

Melbourne's property market is poised for a significant recovery in 2026, with major forecasters tipping the Victorian capital as the top performer among Australia's capital cities this year.

Domain expects Melbourne's median house price to reach $1.17 million by year's end — a rise of roughly $87,000 from current levels. KPMG's Residential Property Outlook is similarly bullish, forecasting 6.6% house price growth and 7.1% unit price growth for Melbourne in 2026, outpacing Sydney, Brisbane, and Adelaide on both fronts.

2026 House Price Growth Forecast by Capital City (KPMG)

A market in recovery

Melbourne's turnaround follows a difficult few years. Dwelling values remained largely flat through much of 2024, and as of early 2026 are still sitting approximately 4.5% below their March 2022 peak, according to PropTrack data. The latest Cotality figures put Melbourne's all-dwellings median at $828,249 as at 1 April 2026, with annual growth of 3.4%.

The underperformance has been attributed to a combination of factors — including the aftermath of Victoria's extended COVID lockdowns, rising state taxes on property investors, sweeping tenancy law reforms, and weaker business confidence relative to other states.

But conditions are shifting. Multiple rate cuts from the Reserve Bank have improved borrowing capacity and buyer sentiment. Auction clearance rates have strengthened, and property prices posted consecutive months of growth through the second half of 2025.

Domain forecast — two phases

Strong price momentum is expected through the first half of 2026, driven by first-home buyer incentives, lower interest rates, and tight listings volumes. Affordability pressures are forecast to moderate growth in the second half, though values are still expected to finish higher than where they started.

Median House Price Comparison — Melbourne vs Other Capitals (KPMG)

Supply crunch deepens

A chronic shortage of new housing stock underpins the bullish outlook. New dwelling completions in Victoria in 2025 are expected to hit their lowest level in a decade, with approved dwellings running around 15% below the 10-year average.

At the same time, Victoria recorded the largest population increase of any state in the year to September 2024 — up 146,700 people, or 2.1%. Melbourne's population currently sits at approximately 5.8 million and is projected to reach nine million well ahead of earlier forecasts. CBRE projects Melbourne apartment rents will grow 24% between 2025 and 2030.

Victoria — Population Growth vs Dwelling Approvals (Annual)

Investor sentiment cautiously returning

Investor participation in Victorian housing finance has climbed to 32% of total lending — up from 27% three years ago. However, Victoria's tax environment remains a headwind. Land tax thresholds for investors were slashed in 2024, and new tenancy laws have prompted a notable exit of smaller landlords from the rental market.

Data from Victoria's Residential Tenancies Bond Authority recorded more bond refunds than lodgements in the March 2025 quarter — the first time that has occurred since the RTBA began tracking the data. The trend points to a shrinking private rental supply at a time when demand continues to rise.

Investor Share of Victorian Housing Finance (%)

The value gap

One factor drawing investor attention back to Melbourne is its relative affordability. The typical Melbourne house is now approximately 41% cheaper than its Sydney equivalent — a discount not seen in around two decades. KPMG's current median house price benchmark for Melbourne sits at $983,000, compared to $1.564 million in Sydney.

For Melbourne, the consensus is clear: after several years of underperformance, 2026 looks set to be the year the city catches up.