Melbourne’s property market is entering a new phase of recovery, with several forecasters expecting fresh record highs in 2026. After a softer few years, momentum is returning as stronger population growth, limited supply, and renewed investor activity reshape the landscape.
For investors, the key is understanding what is driving this momentum and how it may shape your next strategic decision. When you can clearly see the market drivers, you are in a far stronger position to plan your next step with confidence.
What to expect from Melbourne’s market in 2026
Melbourne’s housing market is widely expected to complete its recovery next year, with Domain forecasting growth to unfold in two distinct phases:
- Momentum builds (first half of 2026): Lower interest rates, improving household incomes, and continued policy support, including the expanded First Home Guarantee Scheme, are expected to lift buyer demand. This is likely to translate into stronger price growth and improving auction clearance rates. Domain estimates Melbourne house prices could rise by around 8% in FY26, with unit values increasing by approximately 6% as early momentum builds.
- Growth moderates (second half of 2026): As affordability constraints reassert themselves, growth is expected to slow. Even so, Domain still forecasts house prices to rise by about 6% and units by around 4% over the full calendar year. Ongoing population growth and persistent demand should continue to support values, even as market conditions become more balanced.
Why Melbourne is poised for growth
Several forces are converging to support Melbourne’s next phase of growth. While these conditions create a strong tailwind at a city-wide level, outcomes for investors will ultimately depend on where and what they buy:
Population growth
Melbourne’s population growth remains one of its strongest long-term drivers, fuelled by interstate migration and international arrivals returning to pre-pandemic levels.
Victoria added 124,600 residents in the 12 months to March 2025, the highest increase of any state, according to the Australian Bureau of Statistics. As more people settle across Melbourne, housing demand continues to rise, placing upward pressure on both prices and rents.
Importantly, this demand is not evenly distributed. Population growth tends to concentrate around employment hubs, transport corridors, and lifestyle-driven locations. Suburbs with strong connectivity, established amenities, and ongoing infrastructure investment are typically best positioned to benefit over time.
Supply constraints
Despite strong population growth, housing supply has not kept pace. ABS data shows dwelling completions across Victoria fell by 25.5% in the June 2025 quarter compared with the same period in 2024.
At the same time, the number of established dwellings available for sale has declined. The REA Group Listings Report recorded a 10.4% fall in listings between October 2024 and October 2025.
This ongoing imbalance between supply and demand underpins Melbourne’s growth outlook. For investors, these conditions tend to reward well-located, high-quality assets first. Properties in oversupplied pockets or locations lacking long-term demand drivers may not experience the same uplift, even within a rising market.
Investor numbers up
After several years of capital flowing to other states, investors are increasingly returning to Melbourne. Relative affordability, strong employment fundamentals, and the city’s depth of housing demand are drawing renewed interest.
New investor loan commitments in Victoria rose 27.2% year-on-year in September 2025, signalling a clear shift in sentiment.
Survey data supports this trend. In a recent Property Investment Professionals of Australia survey, 41% of investors identified Melbourne as the most attractive market in the country, reflecting growing confidence in both capital growth and rental performance.
As investor activity increases, demand for quality stock is likely to rise. This reinforces the importance of focusing on strong suburbs, well-located properties, and tenant demand, rather than relying on market momentum alone.
First home buyer schemes not helping the situation
Government initiatives aimed at supporting first-home buyers are adding another source of demand to the market. Measures such as the expanded 5% Deposit Scheme increase purchasing power for some buyers, thereby increasing competition in certain price brackets.
This impact is most noticeable in the lower end of the market, where first-home buyers are typically more active. As competition increases in these segments, prices may rise, reducing entry-level opportunities for investors and placing greater emphasis on careful market and asset selection.
What this means for investors
Melbourne’s improving conditions point to opportunity, but not in a broad, indiscriminate way. Outcomes will increasingly depend on strategy, asset quality, and the ability to hold through changing market conditions. For investors, the focus should be on how growth, rental demand, and competition interact, rather than chasing momentum alone.
Potential for strong capital growth
With demand continuing to outpace supply, many suburbs are positioned for solid price growth over the coming years. This is particularly relevant for investors focused on long-term equity creation or those planning to build portfolio momentum through future leverage.
However, growth is unlikely to be uniform. Areas supported by employment access, infrastructure, and consistent buyer demand are more likely to outperform over time.
Rental demand is likely to remain strong
The same population pressures driving property prices are also strengthening the rental market. With the vacancy rate hovering below 2.5% since 2022 and asking rents increasing by 3.7% between November 2024 and 2025 according to SQM Research, investors can expect reliable rental income to support ongoing cash flow and serviceability.
Competition requires strategic positioning
As more buyers re-enter the market, competition for well-located, high-quality properties is likely to increase. In this environment, success depends on more than securing a property.
Careful suburb selection, disciplined due diligence, and realistic budgeting become critical. Investors who rely solely on market momentum may find opportunities harder to sustain, while those who focus on fundamentals are better positioned to navigate tighter conditions.
Professional guidance becomes invaluable
In a rising and more competitive market, the difference between a good investment and a great one often comes down to the quality of the research and the clarity of the strategy behind it. Identifying suburbs with genuine long-term demand, understanding which property types are more resilient across cycles, and structuring a purchase so it supports your broader financial direction all require informed, objective insight.
This is where strategy-first guidance matters. At SAFORE, we combine deep property expertise with a clear understanding of wealth-building principles, helping investors make considered decisions aligned with their long-term goals. Whether you are refining an existing portfolio or preparing for your first investment, our role is to bring clarity, structure, and confidence to each step of the process.
Considering how Melbourne’s projected growth could fit into your strategy?
At SAFORE, we help investors assess opportunities through a strategic lens, balancing cash flow with long-term capital growth. If you want clarity on how Melbourne fits into your broader plans, you can call us on 1300 69 77 67 or click here to book your strategy session to discuss the right path for your portfolio.
