‘A window of opportunity’ as Melbourne’s median house price falls $70,000 below peak

Melbourne’s weak property market has created a window of opportunity for first home buyers with the means to buy now, experts say, as prices fell modestly for another quarter.

Melbourne’s median house price fell 1.5 per cent in the September quarter and same amount over the last 12 months to $1,024,000, the latest Domain House Price Report, released on Tuesday, showed.

The median is now 6.3 per cent below its December 2021 peak of $1,093,554 – a decline of more than $69,000.

But the median unit price increased 0.5 per cent over the quarter to $572,500.

Domain chief of research and economics Dr Nicola Powell said high interest rates and a build-up of listings for sale had contributed to the continued price weakness.

It comes as some Melbourne investors have also been selling due to the state government’s increase in land tax costs.

“We’ve now got buyers waiting for a rate cut. They’re delaying their purchasing decisions and it presses pause on demand,” Powell said. “It’s also creating a build-up in supply. For buyers who are still at play, it means they have leverage.”

Powell said the gap between houses and units was shrinking.

“It’s narrowed the gap between property prices to a three-year low, that’s a huge shift,” she said. “A house is currently 79 per cent more expensive than a unit … which is a sharp drop from where it was in 2023, 89 per cent.”

House prices fell the most in Melbourne’s inner suburbs, which stretches from Essendon to Elwood. The median there dropped 4.5 per cent over the September quarter to $1,327,500. It was followed by the inner south and inner east, where prices fell 3 per cent and 2.8 per cent, respectively.

Westpac senior economist Matthew Hassan said the increased costs of holding an investment had triggered a sell-off of low-quality investment properties.

“You’ve got a fair bit of price slippage happening, it’s a bit unsettling but it’s not accelerating at this stage,” he said. “It looks like the market’s still digesting some selling pressure that started a year ago.”

Hassan said unit prices inching higher showed still-unaffordable house prices were making apartments more attractive.

“Affordability is a pretty big driver,” he said. “Sentiment towards units has been pretty badly tainted over the past 10 years. Cladding, build-quality, hidden costs and that sort of thing.”

Powell said lending figures showed first home buyers were becoming more active. “First home buyers [make up] 22.4 per cent [of new loans] at the moment, and that’s above the decade average of 18.6 per cent, so there’s a shift going on,” she said.

First home hopeful Brett Gavaghan was among those planning to press the advantage over sellers.

The self-employed social content producer worked with organisations in the real estate industry, including property services company Entourage, which encouraged him to make use of the weak market to buy his first home rather than wait for increased borrowing capacity whenever interest rates start to fall.

“I think we’re in a good position. Time in the market is better than trying to time the market,” he said. “Buying when you’re ready to buy is better than trying to time it and be up against more competition.”

Brett Gavaghan and fiancée Jen are looking to make the most of the weaker property market. Credit: Jason South

Gavaghan and his fiancée recently missed out at an auction that sold for well over the quoted price range. It prompted them to rethink their priorities, and they settled on looking for a house that didn’t present as move-in ready, to avoid a bidding war that could push their dream home out of their price range.

“[It’s about] finding a trade-off between cosmetic and foundational stuff. The more we look, the more we think: OK, this is easily done,” he said. “The other stuff with restumping and refooting is a little harder and a bit more than what we’re prepared to do.

“We’re pre-approved, and we have some savings to put towards this purchase and potentially a renovation.”

The couple’s goal was to buy a house on a reasonably sized block of land that would appreciate more than a unit, and they felt the stagnant market made that easier to achieve.

Gavaghan used Entourage to secure loan pre-approval where broker Nick Ash agreed the market had become easier to navigate for first home buyers.

“There’s a lot more stock, buyers can be a bit more picky and what I’m really seeing is clients, and particularly first home buyers, are being more successful earlier in their property hunt. They’re making offers and potentially buying before an auction even takes place.”

Some buyers were still struggling to purchase, Ash said, despite falling house prices.

“No one’s really getting a bargain,” he said. “It’s a bit harder on the borrowing-capacity side of things. Rates being where they are does affect everyone’s budgets.”