Melbourne predicted to almost be $1m housing city again by 2026: KPMG house price forecast

House prices have been tipped to surge at some of the fastest rates in the country after a rate cut, with forecasts suggesting Melbourne could be a $1m city again surprisingly quickly.

Melbourne’s housing market could be one of the top performers in Australia this year, according to advisory firm KPMG. Picture: David Caird

Melbourne’s housing market has been forecast to switch gears from one of the nation’s worst performing capitals in the past two years to one of its best in 2025 and 2026.

A two-year uptick would add more than $87,000 to the city’s typical house price in the next 24 months, and have the city’s median house price within a stone’s throw of the $1m mark.

Advisory firm KPMG have predicted house prices in the Victorian capital will surge 3.5 per cent this year, second only to Perth — where they have tipped a 4 per cent boost.

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In 2026, the growth is expected to be in even bigger at 6 per cent — with only Sydney outpacing us with a 7.8 per cent increase.

Based on PropTrack’s latest $895,000 median house value, Melbourne’s typical house would gain more than $31,000 this year and a further $55,580 in 2026.

Combined, the two years of growth could put the city’s median house price up to $980,000.

KPMG Chief Economist Dr Brendan Rynne said while the forecast appeared bullish, it was important to note that Melbourne’s home values were down on what they were compared to two years ago — and even with their predicted increase would still not reach their former peak.

The city’s median house price is tipped to be up to $980,000 within two years. Picture: Jason Edwards.

“So it’s really the start of a recovery,” Dr Rynne said.

“But it will be zero growth in the March quarter, and then growing for the remaining three quarters of this year.”

Key to the growth will be an interest-rate cut, which KPMG is now expecting before the end of June, as well as a slow down in new housing approvals.

“And the impact of the land tax fallout, we are thinking is probably coming to an end, in that investors looking to get out in response probably already have,” the economist said.

However, Barry Plant Head of Growth Mark Lynch said the forecasts were far stronger than what they were seeing justified at the coal face of Melbourne’s housing market.

“There’s a fair bit of talk about interest rates coming down, but I personally think it will be flat,” Mr Lynch said.

One of the senior executives at Barry Plant believes the city’s housing market might struggle to reach the forecast growth. Picture: Valeriu Campan.

Speaking on behalf of one of the state’s biggest real estate firms, he noted that there was still a glut of homes for sale hanging over from late 2024 — with landlords selling up likely to continue to feel the pain this year.

Rather than get carried away with home value predictions, Mr Lynch advised people considering selling their home to focus on the lifestyle outcome they were seeking — as no matter what price they got, they would be happy if they made the right move for their family.

However prominent buyer’s advocate Cate Bakos noted that “anything was possible”, and that two of the biggest home price moves in Melbourne’s history had coincided with rate cutting cycles: the aftermath of the GFC and the Covid pandemic.

“I do think Melbourne will turn a corner,” Ms Bakos said.

The buyer’s agent added that particularly considering the city had lost value in recent years, recouping some of that decline seemed quite feasible.

Limited approvals for new construction has also raised the prospect Melbourne’s unit market could be poised for even bigger growth. Picture: NewsWire/David Crosling.

Melbourne units are also expected to cash in with a 4.7 per cent growth spell this year, and a nation-leading 7.1 per cent surge in 2026.

Across the two years, it would add about $71,588 to the city’s $590,000 typical unit price today.

Dr Rynne noted that this growth was to be driven by the relative affordability of units in Melbourne, a slackening in the supply of new units being approved — and because many of those that were being built new had a higher price tag to accommodate increased building costs.

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Originally published as Melbourne predicted to almost be $1m housing city again by 2026: KPMG house price forecast