Housing market update: Economic forces behind demand

How would you describe the 2025 property market?

Andrew: We’re seeing a more confident and active market than 2024, with an 80% auction clearance rate for Jellis Craig in the quarter ending June 2025 versus 75% during the same period last year.¹ Interest rate cuts and improved economic signals have encouraged buyers to re-engage, translating into higher clearance rates, more bidders and renewed momentum. We’re seeing the effect of these improved economic signals in our data, with Jellis Craig reporting a 15% increase in listings during the quarter ending June 2025 compared to the same period last year. Buyers continue to favour quality, well renovated, turnkey homes over the cost and complexity of renovating. There’s continued strength at the premium end, especially in blue-chip suburbs.
 

What macroeconomic forces are having an impact?

Tim: Interest rates, sentiment and affordability remain key. When rates fall, we typically see improved serviceability, higher borrowing capacity and a lift in buyer confidence, and that pattern is playing out now. Overseas migration is another major driver, with strong inflows from India, China and Korea boosting population growth and housing demand. With low unemployment, improving economic conditions and relative affordability, Victoria is well-positioned for upward price pressure for the remainder of the year.

How is this influencing the rental market?

Tim: Rental supply remains tight, with vacancy rates hovering in the mid-1% range across Melbourne. Average household size is increasing, which is helping absorb some demand, but not enough to ease overall pressure. From an investor perspective, Victoria’s high-tax environment has acted as a deterrent. However, Melbourne’s relative affordability – with a median house price of around $790,000.³ – means there is good potential for capital gains, which hopefully will see investor interest return.
 

How are regional markets performing?

Andrew: Activity in all our regional centres is picking up. During the June 2025 quarter, the average number of people through open for inspections increased by 12% for Jellis Craig listings in regional areas compared to the same time last year4 – indicating a growing demand for housing in quality lifestyle locations. There’s genuine value in these markets, and interstate investors are starting to take notice, showing particular interest in Ballarat and Geelong. Stability and affordability are drawing investors and first- and second-home buyers to these areas.

What trend will define the market in 2026? 

Andrew: Buyers will continue to place a strong emphasis on lifestyle, location and amenity. More than ever, people are conscious of reducing household power expenses, with sustainable home design under increasing scrutiny. We anticipate this focus will remain a major and enduring trend well into 2026 and beyond.
 

Do you expect conditions to adjust in FY26? 

Tim: While significant growth isn’t expected, Melbourne is entering a more sustainable phase, supported by a solid supply pipeline and a growing population. Gradual interestrate cuts and ongoing affordability challenges will shape the market, but Melbourne’s renewed affordability advantage – evident in housing prices being at their lowest since 1999 relative to Sydney, and below those in smaller, less economically diverse capitals – positions it to outperform expectations. This advantage is reflected in higher proportions of first home buyers and a return to positive interstate migration, likely driven by lower housing costs.
 

What will define the next decade in terms of the housing market? 

Tim: To support population growth, housing supply must be strategically distributed across Melbourne’s metro area, outer greenfield markets and regional locations. Inner city areas and transport-linked activity centres will see more densification, while outer fringes will favour low-density housing. Regional satellite cities offering jobs and improved transport links to Melbourne are expected to grow in popularity as affordability pressures persist.

Andrew: Melbourne offers exceptional value compared to other capital cities, consistently ranking as one of the most liveable places not just in Australia but globally. We will continue to be a popular haven for high-density countries such as India and China. With solid population growth, improved borrowing access and a focus on unlocking supply, we expect a renewed strength for Victoria. Victoria’s property market has entered a recovery phase. While supply remains constrained, improving economic conditions, relative affordability and strong population growth are set to underpin sustained buyer demand and deliver steady capital growth across the state.

³ Source: Cotality, May 2025
⁴ Source: Jellis Craig Data