Melbourne has posted three consecutive months of home price growth so far in 2025.
While that might not sound particularly remarkable – and indeed, it usually isn’t – it represents a notable turnaround from what Melbourne’s housing market has been seeing: prices fell in most months of 2024, and were down 2% across the year.
This sluggish performance in recent years has been unique to Melbourne.
The past few years, since the RBA started raising rates in 2022, have seen wildly divergent outcomes across the capitals. While Sydney prices have grown, albeit slowly, over the past few years, Melbourne prices have largely tracked sideways to down: home prices today in Melbourne are actually 3.3% lower than in May 2022.
That performance is in very stark contrast to what the smaller capitals have seen. Home prices in Brisbane, Adelaide and Perth were largely unaffected by the increase in mortgage rates, and continued to grow extremely briskly. That’s particularly true for Perth, where prices have shot up 43% in the past three years.
What this enormous divergence in growth has meant is that home prices in Melbourne are now low relative to other capital cities.
Perth, Adelaide and Brisbane have seen such strong growth that median home prices in these cities are now as high or higher than in Melbourne. And in Sydney, which has always been more expensive than Melbourne, the gap between the two cities has never been wider.[1]
This is a recent phenomenon. For most of the 2010s, Melbourne was more expensive than the smaller capitals – with the three cities around 20-40% cheaper for much of the back half of the 2010s. In Perth, prices were briefly higher in the early 2010s on the back of the mining investment boom, which saw an enormous surge in home prices out west.
With home prices starting to slow in the smaller capitals, and Melbourne prices starting to pick back up again, we might start to see Melbourne start to close this gap.
[1] Median prices are not a perfect comparison of housing costs: the types of homes in Melbourne differ from the types of homes in Adelaide, so we are not comparing perfectly like-for-like. Nonetheless, it provides a useful benchmark, and homebuyers can only buy the homes that are available.
