Falling Melb house prices fail to help buyers as mortgage rates bite - realestate.com.au

The decline in house prices in Melbourne is proving insufficient to assist prospective buyers, as increasing mortgage rates have excluded couples seeking the city’s average home from 62 additional suburbs this year compared to the previous year.

A recent report reveals that two-person households with a combined income sufficient to afford a typical $960,000 home through a 30-year mortgage now have access to just 146 suburbs, a decrease from 210 areas in October 2025.

According to the analysis conducted by the financial comparison platform Canstar.com.au, the most affordable suburbs for those looking to purchase a house in Melbourne include Melton, with a median price of $570,000, Melton South at $580,000, and Wyndham Vale at $610,000.

Josh Sale, Canstar’s group manager of research, highlighted that the key insight from the data is that rising interest rates have disrupted the usual relationship between property prices and affordability. “Even in markets where property prices have fallen, the income required to buy the average home has actually increased,” Mr. Sale noted.

In October 2025, couples needed a combined net income of $135,268 to afford a median-priced home in Melbourne. By October 2026, this figure rose by over $4,090 to reach $139,362. In Geelong, the median house price has reached $1 million this year, necessitating a combined income of $142,946 for couples, up from $124,000 the previous year.

Mr. Sale emphasized that despite the drop in typical house values in both Melbourne and some regional areas in recent months, the income necessary for purchasing has increased due to the rapid rise in borrowing costs outpacing the decline in property values. He warned that a potential 0.25 percent increase in the cash rate, which major banks like Westpac and ANZ have identified as a risk, would further tighten borrowing conditions.

Canstar’s report assumed buyers would have a 20 percent deposit, annual expenses of $48,000, and a 3 percent interest rate buffer.

Zac Jacobs, Victorian business director at Cohen Handler, suggested that uncertainty surrounding interest rates in the coming months would likely lead buyers to adopt a cautious approach. “A few years ago, when interest rates were decreasing, people were more inclined to make significant financial decisions based on anticipated serviceability of their loans,” he explained. “With the current expectation of rising interest rates, as indicated by the Reserve Bank and media analysts, buyers face considerable uncertainty regarding their ability to manage increases of 25, 50, or even 100 basis points in the next few years.”

Mr. Jacobs typically advises those purchasing a home for the long term—15 to 20 years—to stretch their budget to acquire the best property possible for lasting happiness. He noted that while many buyers often have to compromise on their location due to budget limits, looking at nearby suburbs is a common strategy.