Melbourne is now officially cheaper than Perth. Yes, you read that right. The city once known for skyrocketing prices is now one of the most affordable capital cities in Australia and investors are starting to circle.
The latest data from PropTrack’s Home Price Index paints a surprising picture of Melbourne’s real estate market in 2025. The median house price has nudged up to $782,000, a modest 0.8% rise in May. But while Melbourne is making a slow comeback after its Covid-era slump, it’s just been overtaken by Perth for the first time in over a decade.
According to REA Group senior economist Anne Flaherty, Melbourne is now the third cheapest capital city to buy in behind only Hobart and Darwin.
For investors or first-home hopefuls looking to buy home in Australia, this might be the most accessible moment Melbourne has offered in years.
“It’s also one of the cheapest capital cities to rent in,” Flaherty notes. “That affordability is going to draw people in particularly those priced out of Sydney and Brisbane.”
REA Group senior economist Anne Flaherty says Melbourne has seen very little price growth since 2020.
Why Melbourne is becoming a magnet for migration
Melbourne isn’t just a cheap buy, it’s a growth story waiting to unfold.
Flaherty highlights that Melbourne is expected to see the strongest population growth of any Australian capital over the next decade. And with most new arrivals entering the rental market first, it’s only a matter of time before they become buyers.
“After five years of renting, many will transition into homeownership,” she says. “That wave of new demand is coming and it will push prices up.”
Why was Melbourne’s growth so weak?
From March 2020 to now, home prices in Melbourne only rose 16% — far behind the 43% national average. For comparison:
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Brisbane? Booming.
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Perth? Up 8.4% last year alone.
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Adelaide? Quietly climbing.
So what’s held Melbourne back?
According to Flaherty, it’s largely due to supply. Melbourne had one of the most balanced housing pipelines during and after Covid, with enough new homes to absorb population growth. In contrast, cities with tight supply (like Perth) saw faster price surges.
Add to that 13 interest rate hikes and increased land tax, and many landlords were forced to sell off investment units, especially those under the million-dollar mark.
What’s next for investors?
This may be Melbourne’s turning point.
Flaherty says 2025 is already showing signs of recovery, and with interest rates finally coming down now at a two-year low of 3.85% confidence is returning to the market.
“First-home buyers who sat on the sidelines are stepping in. The sentiment is shifting.”
Jellis Craig partner Nigel Harry agrees:
“There’s a ton of infrastructure going into the inner city. People are starting to see Melbourne as a safe long-term investment.”
What about yields?
If rental return is your game, you’re in luck.
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Melbourne units are offering 5.2% rental yields, well above the capital city average.
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Houses are yielding around 3.8%, on par with other major cities.
Final thought
If you're looking to buy home in Victorian suburbs before they become the next hot market, Melbourne might be your best shot in 2025.
It’s a rare moment when:
Property is still affordable
Migration is rising
Interest rates are falling
And infrastructure is booming
Don’t be surprised if Melbourne transforms from underdog to investor darling in the next 12–24 months.
