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Victoria’s housing and real estate market is currently defined by a striking ‘tale of two cities’—or, more accurately, a tale of one major city and its strong-performing regional counterparts. As we move through 2025, market watchers are observing a nuanced picture, influenced heavily by shifting interest rate expectations, population dynamics, and a persistent affordability crisis.

Melbourne: Stability with Selective Growth

The Melbourne housing market is showing signs of a steadying momentum, recovering after a period of softer growth. The second quarter of 2025 saw a modest but positive value change, a trend expected to continue into the latter half of the year. This stability is driven by a balancing act: a renewed interest from buyers, particularly as the Reserve Bank of Australia (RBA) has signaled a willingness to ease the cash rate, contrasted with ongoing economic headwinds.

• Subdued Price Action: Unlike the post-pandemic ‘turbocharged’ booms seen elsewhere, Melbourne’s growth is expected to be more restrained. Inner-city and middle-ring suburbs with strong owner-occupier appeal and limited stock are predicted to outperform.

• The Unit Bounce: The unit market is recording stronger performance than detached houses in some areas. Affordability constraints are pushing buyers, especially first-home buyers, toward apartments and townhouses, resulting in stabilising values and a lift in investor activity for inner-city units.

• Affordability Challenge: Despite the slower capital growth compared to some other cities, Melbourne remains one of the world’s least affordable major housing markets. It now takes a median-income household almost a decade to save a 20% deposit. This pressure is accelerating the shift of first-home buyers and moderate-income families to the outer growth corridors.

Regional Victoria: The Engine of Growth

Regional Victoria has consistently been the stronger performer in the state’s property narrative. Following the ‘tree-change’ phenomenon, key regional centers like Geelong, Ballarat, and Bendigo are seeing a robust market underpinned by:

• Price Resilience: Regional Victorian property prices have returned to positive annual growth. In the second quarter of 2025, house values rose significantly, with median values pushing past $617,000.

• Migration and Demand: Strong internal migration from Melbourne continues to fuel demand, with areas like Greater Geelong and Moorabool being national hotspots for population inflow. This sustained demand is key to the price stability and growth.

• Rental Market Tightness: Rental markets in regional areas are exceptionally tight, with strong annual growth for both houses and units. This, coupled with comparatively lower entry prices than Melbourne, is attracting increased interest from investors seeking solid rental yields.

The Policy and Economic Headwinds

Underpinning these market movements are significant regulatory and economic factors:

• Interest Rates and Confidence: Expectations of further RBA rate cuts later in 2025 are a crucial factor for boosting buyer confidence and increasing borrowing capacity. However, affordability will remain an issue as experts believe mortgage rates won’t return to the historically low levels seen in previous years.

• Supply Crisis: Victoria faces a chronic housing undersupply, with building approvals at historic lows even as population growth surges. The State Government’s efforts, such as the Victorian Housing Statement, aim to streamline planning for medium- and high-density residential projects to boost housing supply.

• Underquoting Crackdown: The Victorian government is increasing scrutiny on real estate agents to curb the illegal practice of underquoting. New guidelines mandate agents must use the sale prices of at least three comparable properties to determine a reasonable estimated selling price. This aims to restore buyer trust and prevent false hope for purchasers.

In summary, Victoria’s real estate market in 2025 requires a strategic approach. While Melbourne offers stability and targeted opportunities, regional centers present stronger momentum and investor appeal due to lifestyle and comparative affordability. Navigating this market successfully means understanding the distinct drivers of each segment and adapting to the evolving economic landscape.