A leading real estate agent says Melbourne is the “value outlier of the Australian market” – with early signs showing its long run of uncertainty and lagging prices is finally about to turn.

“We’ve been in a holding pattern, but that is shifting,” Abercromby’s chief executive Sally O’Connell said.

“The adjustment Melbourne went through was overdone, and 2026 will be the year the market begins to re-rate.”

Melbourne has lagged boom cities, particularly Perth and Darwin, although recent results tell a more optimistic story. Annualised growth of 6.4 per cent in the last quarter shows momentum is quietly rebuilding.

“Melbourne is entering a moderate but sustainable growth phase,” O’Connell said.

“Given our lifestyle, amenity, global reputation and the scale of population growth ahead, buyers are starting to recognise the value sitting in this market.”

She said the Victorian capital remained one of the most affordable in Australia, despite its scale and liveability. But the imbalance was unlikely to last.

Conditions in the city’s real estate market are finally settling after two years dominated by rate hikes, shifting policy signals and volatile sentiment.

“The uncertainty is easing,” O’Connell said. “Listings have lifted off their lows, buyers have better clarity around policy and interest rates, and we’re seeing a healthy return of genuine demand.”

Capital city changes in property prices and medians

Melbourne’s long lag

Once the country’s second-most expensive capital city behind Sydney, Melbourne’s growth has been dwarfed by other centres.

Tim Lawless from property analyst Cotality said the gap between the NSW and Victorian capitals hadn’t been as wide since 1999.

“The median house value in Melbourne is about $980,000. That’s a little bit more than $600,000 lower than what you’ll find in Sydney as a median,” he told the ABC recently.

Cotality attributes that partly to land tax hikes in Victoria. It estimates an investment property with a land value of $650,000 is slugged with an additional $1300 in the annual tax. In addition, tenancy laws have tightened in Victoria.

Ray White chief economist Nerida Conisbee also pointed out another reason for Melbourne’s relatively lower home prices.

“There are a lot of low-cost apartments in Melbourne … they have managed to build a lot of homes at quite a low cost, which has kept things much more affordable,” she told the ABC.

Cotality noted that Melbourne is above the national average for new loans taken out by first-home buyers. Lawless said that was the flip side of five years of softer housing growth.

“It’s … absolutely the most affordable of the major capitals,” he said.

Premium suburbs still set the pace

O’Connell said Melbourne’s “flight to quality” was undeterred in blue-chip pockets such as Stonnington and Boroondara, in the city’s leafy inner-east.

“Well-located, renovated homes in these areas are still fiercely contested,” she said.

“Owner-occupiers are decisive, whether at auction or off-market. The appetite for quality family homes hasn’t faded for a moment.”

More compromised homes are still selling, but buyers are choosy.

“This isn’t an overheated market, it’s a thoughtful one,” she said. “Buyers know what they want and they’re unwilling to compromise on liveability.”

Beyond the city fringe, lifestyle regions such as the Macedon Ranges and Mornington Peninsula continue to draw strong interest for character homes, acreage and sea-change retreats.

But higher holding costs – including land tax, vacant property levies and more owners offloading second homes – are reshaping competition.

“Demand is still healthy, but buyers are more disciplined,” O’Connell said.

“Scarcity supports values for standout homes, but cost-of-ownership considerations are definitely influencing behaviour.”

Melbourne’s apartment boom has also helped to keep a lid on its property prices. Photo: AAP

Winners in 2026: Prepared buyers, realistic vendors

O’Connell said would-be buyers should be clear about what they wanted, and prepared to act.

“If you know what you want and you’re finance-ready, this market will reward you,” she said.

For sellers, presentation and realistic expectations remain critical.

“The fundamentals haven’t changed. Great campaigns still come down to pricing right, presenting well and reaching the right audience,” O’Connell said.

Population growth will fuel pressure

Victoria welcomed nearly 98,000 new residents last year, with forecasts of 100,000 to 130,000 newcomers annually for the coming years.

O’Connell said it was one of the strongest forces shaping Melbourne’s resurgent property market.

“The demand foundation is as strong as it’s been in a decade,” she said. “Population growth will steadily push up competition, especially in family-friendly and well-serviced suburbs.”

O’Connell described Melbourne as firmly in its “value rotation” phase, with affordability, quality stock and rising population converging to drive a reset.

“Exceptional homes in premium pockets will continue to exceed expectations,” she said.

“Secondary stock will need realistic pricing. And downsizer-friendly, single-level homes will remain incredibly tightly held.”

O’Connell said Melbourne was no longer the underperformer of the Australian property market, it was the opportunity.

“We’re moving toward equilibrium,” she said.

“2026 will be the year Melbourne realigns with the rest of the country and the buyers who understand the value story will be the first to benefit.”

Republished from View.com.au