The most anticipated factor affecting the Melbourne property market's performance is the level of interest rates.  Throughout 2024 the cash rate was held steady at 4.35 per cent but since February, interest rates have been cut by 75 basis points and the official cash rate is now at 3.6 per cent

Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.  While inflation has eased somewhat, it remains high, which has reduced consumer confidence.  Many potential buyers are postponing property purchases, uncertain about the future of the economy and their own financial situation.

While parts of the market are maintaining price levels, there is a general cooling trend across the board.  Generally, demand for properties has softened as buyers become more cautious faced with ever increases in the cost of living.  Specific areas that have been affected are the outer suburbs and regional or holiday areas, which saw significant price increases during the pandemic boom.  These areas are now showing a decline in prices as the housing market corrects itself from the rapid price growth seen in earlier years.  Overall, some analysts suggest that house prices may have fallen by around 5-10% in certain areas.

Residential auction clearance rates are currently being quoted at approximately 73% although estate agents are reporting a decline in auction numbers, with a higher level of private sales and expressions of interest now being negotiated.  It is now held that the market is favouring buyers with supply outstripping demand.

With the real estate market slowing, mortgage stress (when a household is spending more than 30% of its pre-tax income on home loan repayments) appears to be increasing and while bank arrears have only risen modestly, the 30-day delinquency rate on non-conforming or sub-prime loans has risen from around 2.5 per cent to around 4 per cent.

On July 1, 2025 the Victorian Government introduced a new Emergency Services and Volunteers Fund Levy placing a further impost on residential, commercial, industrial and primary production properties.  This new levy is in addition to other recent and upcoming increases in property taxes, such as the 10-year increase in land tax rates due to the COVID-19 debt levy, the expansion of the Vacant Residential Land Tax to the whole of Victoria from 1 January 2025 as well as to certain types of unimproved/undeveloped lands from 1 January 2026.

Owners of non “principal place of residence” residential properties will also pay higher fire services levy from 1 July 2026 as these properties will have the same higher fixed charge rate as other non-residential properties.

The introduction of these and other taxes have placed further pressures on the real estate market particularly on those who own a second home or an investment property.  Estate agents have reported an increase of former investment properties being offered to the market so as to meet the ever increasing burden of land and other property taxes.