by Carly Susic, Melbourne Property Advocate
I wish I had a dollar for every time someone asked me for my Melbourne property market predictions. I’d be rich! But I am always wary of giving concrete opinions. As there are so many unforeseeable factors that can influence how the market will perform this year. What I can offer is my cautious opinion on how the market will perform. And importantly, what factors will influence the 2026 Melbourne property market.
What we learned from 2025 in the Melbourne property market
As last year drew to a close, things were looking pretty good. We had three cash interest rate cuts from the Reserve Bank of Australia. This stimulated consumer confidence across many segments of the economy.
As such, home owners were feeling more confident about selling for their desired price. Likewisek agents were telling us that property stock levels will increase in early 2026.
However those expectations have failed to deliver in reality. As we begin the year, I’m expecting a patchy Melbourne property market in 2026.
Inflation woes and global conflict
When inflation failed to fall into line in late 2025, the RBA lifted rates again in February and March 2026. This puts a dampener on vendor confidence and buyer capacity. The war in Iran is causing global repercussions, and potentially impacts petrol prices. In our geographically large country, where freight costs are considerable, higher petrol prices will undoubtedly be passed on to consumers. If the war lingers on or impacts petrol prices, we are likely to be paying more for everything: groceries, travel, entertainment, insurance, you name it. This in turn reduces people’s borrowing capacity and causes even more caution in the market. Making these global considerations another reason to expect a patchy and slow Melbourne property market in 2026.
These cost of living considerations make everyone cautious
All this cost of living pressures mean homeowners and buyers are equally cautious about making big financial decisions in 2026. Many will be thinking that the current climate feels risky, and it’s better to wait things out. For vendors, this means staying in their current home, regardless of how it impacts their lifestyle. Of course there will always be those who must sell regardless – selling due to divorce, death in the family or other reasons. But many will choose to wait if they can afford it.
Buyers will also be hesitant. Not only will there be limited properties on the market for purchase, but buyers will have reduced capacity. Some may not be willing to compromise. First home buyers may decide to continue renting. While upsizers may choose to wait out the market as well, even if their current home no longer ideally meets their circumstances.
The one buying group that can best take advantage
Upsizers are always set to enjoy the biggest benefits of a slower market. Let’s say property prices are down 10% by the end of 2026. As an upsizer you sell your $1million home for $900,000. But the home you purchase that was previously valued at $2million is now down 10% to $1,800,000. You took a bit of a cut on the sale of your current home. But you enjoy a larger benefit when you purchase a higher-priced property.
Will the increased interest rates see vendors selling due to financial distress?
We can see the crunch on homeowners in the data on mortgage stress. Roy Morgan data shows that just under 30% of mortgage holders are struggling to make repayments in Victoria. This has been on the increase since 2025, going from 27.2% in November 2025 to 29.9% in March 2026. A further 18.3% of Victorian homeowners are ‘extremely at risk.’ Some homeowners may decide to sell their home rather than continue struggling to make repayments. However this is likely to be a very small portion of properties on the market. It is unlikely to influence the flow of stock coming on to the market. Homeowners usually do whatever it takes to keep their home. Selling it is often a last resort that many will be able to avoid. Sacrificing discretionary spending like holidays, entertainment and reducing household spending will very likely come first. So we can’t expect oversupply due to mortgage stress to be happening in 2026.
Property investors are selling
In 2024 and 2025 investors in Melbourne and Victoria have been selling their properties, and this trend is expected to continue in 2026. Higher land taxes and tenancy reforms have made it harder for landlords to make decent returns on investment properties, and many are selling up to invest their funds elsewhere. We are also seeing this in regional holiday home locations such as the Mornington Peninsula and Bellarine Peninsula.
This brings a welcome addition to the supply of homes in a slower market. However homes that have been rented are often not of the highest quality. Some landlords neglect rental properties, letting them fall into disrepair, and tenants are known to be rougher on properties that are not their own. We call these homes ‘well lived,’ especially if they’ve been rental properties for many years. These properties are likely to be run down, in need of repair and not always the best location. So they aren’t necessarily the best buying decision for owner-occupier buyers.
How the state election impacts the Melbourne property market
We know that federal elections tend to put a dampener on the property market, as vendors and buyers wait to see if a change of government will impact their financial situation. State elections don’t seem to have the same impact, however the Victorian state election is due in November 2026 may see a similar slowdown in the spring. It is possible that buyers and vendors may wait to see if a change of government will impact property affordability or cost of living. It will of course depend on what policies each party brings to the election and who wins it. When we see a change of government, there is often an increase in market positivity, especially when the sitting party has been in power for a long time, as is the case with the current labour government in power for 11 years. So if the coalition win the state election there may be a nice upswing in positive market sentiment to close off the 2026 property market. However even with a change of government it’s not certain that changes to land taxes or rental reforms will occur.
Will it be a slow winter and spring in 2026?
The market always slows in winter as homeowners don’t want to sell during the colder months when their gardens are less appealing and the cool weather makes constant home inspections dreary for buyers. The cycle swings up again every spring, but spring in the Melbourne property market is always patchy. It’s a fantastic time to buy and sell as your property is looking its best, but the market is interrupted by school holidays, the AFL grand final and spring racing carnival, so it can be tough to get a clean run to stage a four-week campaign.
In a weaker market, the winter lull has the potential to extend a bit longer, especially with an election in November so vendors may wait to test the market. Which means buyers may need to wait a few extra weeks to really see if the market picks up. Towards the end of 2026 we will have a good idea how inflation has performed and how global conflicts are impacting property market confidence.
Melbourne is attracting interstate investors
Melbourne has been an outlier in the property market compared to other cities around Australia. Growth in prices has been weaker when comparing Melbourne to Sydney, Perth, Brisbane and Adelaide. This makes us an attractive location for interstate investors. Buying in Melbourne is cheaper than other states, so naturally investors are taking advantage of the opportunities.
Melbourne property market predictions: in summary
I’m expecting a slow and patchy property market in 2026, due to factors including global conflict, rising cost of living, inflation and higher interest rates.For buyers there should be some good opportunities as some buyers hold off due to uncertainty. If we have a good supply of properties to the market it should be a good year for buying.
