Key Takeaways:
Some investors may be reassessing Melbourne as softer prices and relative affordability reshape buying decisions
Melbourne property values have grown more slowly than Perth and Brisbane, potentially creating lower entry points for some buyers
Improving rental yields and tighter vacancy rates are helping keep investor interest elevated in parts of Victoria
Buyers may be gaining slightly more negotiating power as listings rise and market conditions become more balanced
Understanding borrowing power and long-term affordability remains critical before entering the market
Victoria may be moving back into focus for some property investors, with new lending projections suggesting the state is rapidly closing the gap with New South Wales as Australia’s largest lending market.
Money.com.au’s State-by-State Mortgage Insights Report forecasts Victoria will record 166,345 total home loans in 2026, placing it just 300 loans behind NSW and making it the country’s fastest-growing major lending market.
According to the report, much of that growth was driven by investors. Investor lending in Victoria rose 21% over the past year, more than five times the pace of owner-occupier growth.
Industry experts say the shift reflects a broader reassessment happening across Australia’s property market, as buyers weigh affordability, borrowing power, rental yields and long-term value more carefully in a higher-rate environment.
For some investors, Melbourne’s softer price growth and comparatively lower entry costs are beginning to reshape the investment equation.
Why some investors are reconsidering Melbourne
Independent economist Saul Eslake said Melbourne’s relative affordability compared with other capital cities is likely playing a major role in Victoria’s renewed investor momentum.
“The most obvious explanation would presumably be that Melbourne property prices are now relatively cheap by comparison, not just with Sydney, but with Brisbane and Perth as well,” he said.
Cotality's national home value index shows Melbourne dwelling values rose 2% over the year to April, compared with 19.7% growth in Brisbane and 26% growth in Perth in the same period.
At the same time, Melbourne dwelling values remain 2.3% below their March 2022 peak, while Perth and Brisbane continue sitting at record highs.
That gap is helping shift attention back toward Victoria for some investors who may have been priced out of stronger-performing markets or are taking a longer-term view.
Aussie Buyer’s Agent Brent Compton said the difference in what buyers can purchase across states is becoming increasingly noticeable.
“You might be forced to buy a one-bedroom unit in Sydney for $650,000, but for $650,000 in Victoria, you could get a house a little bit out of the CBD,” he said.
“Or you can buy a two-bedroom, two-bathroom apartment in Melbourne for what may only buy you a one-bedroom apartment in some other capital cities.”
Victoria also continues to lead the country in owner-occupier lending volumes, with almost 99,000 owner-occupier loans issued in the 12 months to December 2025, according to Money.com.au.
For borrowers, lower entry prices can affect everything from deposit requirements to borrowing capacity and ongoing repayment pressure.
In a higher-rate environment, affordability and cash flow are becoming increasingly important considerations for both investors and owner-occupiers.
Rental yields are improving as prices soften
Rental conditions are also contributing to renewed investor interest in Victoria.
Cotality data shows Melbourne gross rental yields have lifted to 3.8%, while rental growth continues despite softer dwelling values.
National vacancy rates also remain tight at 1.7% in April, well below the long-term average. Pre-COVID, the national rental vacancy rate averaged 3.3%.
That combination of softer price growth and rising rents may be encouraging some investors to revisit Melbourne after several quieter years.
However, rising rental yields do not automatically make investing more affordable. Higher interest rates mean loan repayments and holding costs may still outweigh rental income for some buyers, particularly those with smaller deposits.
That means borrowers may need to pay closer attention to servicing costs, buffers and long-term affordability rather than relying solely on future price growth.
Rod Peirce, Aussie Broker, said many investors are still taking a cautious approach despite improving conditions in some parts of the market.
“People have decided to hold off and take a wait-and-see approach,” he said. “The horizon looks pretty cloudy, so people are hanging back and waiting.”
Peirce said rising holding costs, interest rates and broader uncertainty are continuing to affect confidence.
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Queensland and Western Australia are still strong, but momentum may be easing
Victoria’s rebound also comes as some previously high-performing markets begin to slow from exceptionally strong growth levels.
Money.com.au forecasts Queensland loan growth will slow to 4% in 2026, while Western Australia is expected to be the only state to record a decline in lending activity this year.
That follows several years of exceptionally strong growth across both markets.
Cotality's national home value index shows Perth dwelling values rose 26.0% over the year to April, while Brisbane values climbed 19.7%.
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However, the pace of growth is beginning to moderate across most capital cities.
Compton said investors are increasingly reassessing where their money stretches further rather than simply chasing recent growth trends.
“Areas which have been up for 3, 4 or 5 years often don’t continue at the same rate of growth they had before,” he said. “Not all marketplaces move at the same time.”
That does not necessarily mean investors are abandoning Queensland or WA altogether. Lifestyle appeal, population growth, and rental demand continue supporting many markets.
But some buyers may now be comparing affordability, borrowing power and holding costs more closely as rates remain elevated.
Buyers may be gaining slightly more negotiating power
Softer conditions are also beginning to create more balanced buying conditions in some markets.
Auction clearance rates across the combined capitals have remained below 60% since mid-March, while vendor discounting has edged higher in recent months.
Advertised stock levels in Melbourne were also 7% higher than a year ago in early May, according to Cotality’s monthly chart pack for May, giving buyers more choice than they had during tighter market conditions.
That may create more opportunities for buyers to negotiate on price or compare a broader range of properties before making a decision.
Peirce said opportunities still exist for buyers who remain financially prepared.
“Good properties will always sell if they’ve got good bones and strong offerings,” he said.
At the same time, Eslake said stronger investor activity can increase competition for first home buyers, particularly in the established housing market.
“Investors can typically pay more for properties because they can deduct their interest against their tax, whereas people trying to buy their own home can’t,” he said.
That means first home buyers may still need to focus on long-term affordability rather than trying to perfectly time the market.
“If you’re an aspiring home buyer and you find the home that you like, that you can imagine yourself living in for five or 10 years, then you should probably buy it, if you can afford it,” Eslake added.
Why preparation may matter more than prediction
Housing conditions are becoming increasingly diverse between states, price points and buyer segments as affordability pressures reshape demand.
That means understanding borrowing power, repayment buffers and long-term cash flow remains important before making any property decision.
While Victoria may now be drawing renewed investor attention, experts say property decisions should still be guided by personal affordability, financial preparedness and long-term plans rather than short-term market momentum alone.
An Aussie Broker can help buyers compare lending options, understand how much they may be able to borrow and assess whether a property purchase aligns with their financial goals and circumstances.