Melbourne’s housing market has entered its broadest downturn in more than a decade, with new data showing almost every suburb across the city recorded falling house values during the June quarter as higher borrowing costs, weaker investor demand and recent federal tax changes combined to weigh on prices.

According to PropTrack’s latest Quarterly Home Values Report, house values declined in 380 of Melbourne’s 409 suburbs over the three months to June, meaning 93 per cent of the metropolitan market recorded a fall in median house prices. The result represents Melbourne’s weakest quarterly performance in at least ten years and exceeds previous downturns recorded during the Reserve Bank’s aggressive interest-rate tightening cycle in 2022.

Only 29 suburbs managed to record any increase in median house values, while just 18 achieved gains greater than 0.5 per cent.

Among the strongest performers were Romsey and Lancefield on Melbourne’s northern fringe, where median house prices climbed approximately 8 per cent over the quarter to about $870,000 and $787,000 respectively. Property analysts suggested these more affordable locations continue attracting buyers seeking larger homes within commuting distance of Melbourne.

The breadth of the downturn surprised many market observers.

Even during late 2022, when the Reserve Bank lifted the cash rate from 0.35 per cent to 3.6 per cent within eight months, around 85 per cent of Melbourne suburbs experienced price declines. The latest figure of 93 per cent now exceeds that earlier correction.

Similarly, during the so-called “mortgage cliff” in late 2024, when many borrowers rolled off ultra-low fixed-rate loans onto significantly higher variable rates, approximately 89 per cent of suburbs recorded falling values—still below today’s level.

While detached houses experienced widespread weakness, Melbourne’s unit market proved somewhat more resilient.

PropTrack found that unit values increased across 79 suburbs during the same three-month period, reflecting continued demand for more affordable housing options as higher interest rates reduced borrowing capacity for many households.

REA Group senior economist Anne Flaherty said multiple factors were contributing to the downturn rather than any single event.

Higher interest rates have reduced borrowing power, while uncertainty surrounding investor taxation has discouraged some buyers from entering the market. At the same time, affordability pressures continue limiting how much owner-occupiers are prepared to pay.

Several property analysts believe changes announced in the Federal Government’s May Budget have intensified those existing pressures.

New measures affecting negative gearing and the capital gains tax (CGT) discount have led some investors to reassess residential property purchases, particularly in Melbourne where price growth has already lagged other Australian capitals in recent years. Industry figures argue the reduction in investor activity has contributed to weaker demand across established housing markets.

The Albanese Government has argued that the budget reforms are designed to improve housing affordability and encourage investment in new housing supply rather than established homes. Supporters of the policy contend that reducing speculative demand should improve opportunities for first-home buyers over time, although economists remain divided over the likely long-term impact on prices and rents.

One group continuing to provide some support for Melbourne’s market is first-home buyers.

Of the relatively small number of suburbs that still recorded price growth, most had median house prices below $950,000. Analysts believe many of these areas are benefiting from the Federal Government’s expanded Home Guarantee Scheme, which allows eligible buyers to purchase with a 5 per cent deposit without paying lenders mortgage insurance.

Affordable suburbs on Melbourne’s fringe have therefore continued attracting owner-occupiers even as investor demand weakens.

However, that resilience has been largely absent in higher-priced inner and middle-ring suburbs, where reduced borrowing capacity and increased uncertainty have resulted in fewer buyers competing for premium homes.

Melbourne’s housing market has been underperforming most other Australian capitals for several years.

Following strong growth during the pandemic, the city experienced a slower recovery than Brisbane, Perth and Adelaide, all of which overtook Melbourne on several national housing affordability and price-growth measures during the mid-2020s. PropTrack estimates Melbourne’s median dwelling value remains below its 2022 peak, reflecting a prolonged period of subdued performance.

Economists caution that while falling house prices create challenges for existing homeowners, they may also improve affordability for prospective buyers.

Lower purchase prices can reduce mortgage sizes, particularly for households entering the market for the first time. However, those benefits may be partly offset by higher borrowing costs if interest rates remain elevated.

Some property professionals also point to broader economic uncertainty as influencing buyer behaviour.

Inflation remains above the Reserve Bank’s preferred target range, while households continue facing higher mortgage repayments, insurance costs and general living expenses. Those factors have collectively reduced confidence across Melbourne’s residential property market.

Despite the current downturn, analysts do not expect every suburb to perform equally.

Areas benefiting from improved transport links, employment growth, population expansion or comparatively affordable entry prices are expected to prove more resilient than premium suburbs heavily reliant on discretionary investor demand.

Regional commuter towns surrounding Melbourne may also continue attracting buyers seeking more space while maintaining access to metropolitan employment opportunities.

Industry observers caution that housing markets rarely move uniformly for extended periods.

Seasonal factors, future interest-rate decisions, migration levels and investor confidence will all influence whether Melbourne’s current correction deepens or begins stabilising later this year.

For homeowners, the latest PropTrack figures underline just how broad the downturn has become. For prospective buyers, however, the current market may offer opportunities that have been largely absent during previous years of rapid price growth.

Whether Melbourne’s housing market is approaching the bottom of its cycle remains uncertain. What is clear is that the June quarter has delivered the city’s most widespread decline in house values for at least a decade, highlighting the significant pressures currently facing Australia’s second-largest residential property market.