Just two weeks after the RBA's historic rate cut, we're seeing a remarkable market response that few analysts predicted – Melbourne has emerged as the unexpected leader in property price growth, marking a decisive end to its prolonged period of underperformance.
The February Turnaround: A Broad-Based Recovery
The February CoreLogic figures confirm what many of us have been witnessing on the ground – the housing downturn has reversed course, with a national gain of 0.3% in home values last month. This ends what turned out to be a remarkably brief three-month downturn and signals the beginning of what could be a significant new growth cycle.
Most striking in the data:
- Melbourne and Hobart led monthly gains at 0.4% each, breaking Melbourne's streak of ten consecutive months of falling home values
- Sydney rebounded with a 0.3% rise, halting a four-month downturn that had dragged prices down by 1.7%
- The recovery was broad-based with every capital and 'rest-of-state' region except Darwin (-0.1%) and Regional Victoria (flat) recording monthly rises
This shift marks what could be a fundamental inflection point in market dynamics, with the Sydney and Melbourne markets – previously the laggards – now showing renewed strength.
Auction Markets Maintain Strength
The volume of auctions held last week was the highest so far this year, with 2,773 homes going under the hammer – slightly higher than the previous week (2,751) and 4.1% above levels over the same week last year.
While the preliminary clearance rate nudged lower last week at 69.9% across the combined capitals (after holding above 70% over the past two weeks), the major auction markets of Sydney and Melbourne maintained a 70%+ preliminary clearance rate. Sydney recorded an early clearance rate of 71.4% across 981 auctions, though this was down from 74.4% a week earlier.
As Tim Lawless observed: "Along with the modest rise in values, we have also seen an improvement in auction clearance rates, which have risen back to around long-run average levels across the major auction markets."
Louis Christopher from SQM Research noted the increased buyer activity: "There were more people attending the auctions this weekend. They may have been just sizing up a market, getting their ducks lined up, picking where the value is, working on their budgets."
Market Psychology Shifting
The market's response to the February rate cut has been swift and decisive. REA Group senior economist Eleanor Creagh notes: "Market sentiment has improved now that interest rates have started to move lower. As a result of the boost to purchasing power, price falls in Sydney have reversed."
This psychological shift is evident on the ground as well. Sydney-based real estate agent Adam Ross of McGrath reports "a distinct improvement in buyer sentiment in the past six weeks," while Melbourne buyer's agent Cate Bakos describes a market moving faster than many realize: "Those who are in the market to buy absolutely know it's tough, but those who aren't are still reading the news and thinking Melbourne is lagging."
The experiences of actual home buyers reinforce this narrative. Richard Laettemaegi, who is looking to buy a family home in Melbourne's Kensington, has already felt the competitive pressure: "We already missed out on a house we put an offer on and got accepted because someone else came in with a higher offer. If we don't buy now, it could be tougher to break in later on, especially if prices take off."
FOMO Returning to the Market
The fear of missing out (FOMO) that characterized the 2021 boom appears to be making a comeback. Buyer's agent Cate Bakos observes: "A lot of people are very nervous about having a repeat of 2021 and being left behind."
This sentiment is echoed by Kevin Chokshi, director at Ray White Bayside Group in Melbourne: "It's a small recovery, but it fuels more confidence in the market. If you're in the market for a property, it reinforces your decision to buy now because you're likely to face tougher competition later on."
Home price growth by GCCSA for dwellings
Annual Growth
Year to February 2025, all dwellings
Changing of the Guard
Perhaps the most significant shift in the February data is the changing leadership among capital cities. The mid-sized capitals of Brisbane, Perth, and Adelaide – which have dominated price growth over the past two years – appear to be slowing. With monthly changes of just 0.2% to 0.3%, these markets were outpaced by Melbourne and Hobart in February.
While Adelaide and Brisbane are still leading rolling quarterly growth trends (up 1.2% and 0.9% respectively), Perth's value growth has slowed more sharply, with downward revisions over recent months dragging the quarterly change to just 0.3%.
Melbourne's Surprising Comeback
More detailed data from February paints an even stronger picture for Melbourne, with some reports showing home prices increasing by as much as 0.67% for the month, making it the capital where prices grew fastest. This is particularly significant given Melbourne's extended underperformance – prices have dropped by 6.4% since peaking in March 2022 and gained only 8.2% in the past five years.
CoreLogic research director Tim Lawless sees this recovery as sustainable: "I think Melbourne's recovery is sustainable because of its affordability, which has improved the most in the past few years and has such a diverse economy."
This affordability advantage is stark – Melbourne's median home value now sits $121,864 lower than Brisbane, $49,640 cheaper than Adelaide, and $35,372 more affordable than Perth. In essence, Melbourne has become Australia's second-largest city but remains the fourth-cheapest capital after Darwin, Hobart, and Perth.
The Rise of Interstate Investors in Melbourne
A particularly interesting development is the emergence of interstate investors targeting Melbourne. Cate Bakos reports: "We've had really strong investor interest from interstate, and my dominant batch of investors are from Adelaide, Perth and Brisbane. I put that down to equity gains in those markets over the past two years."
With prices in Brisbane and Adelaide having already surged considerably and Perth prices appearing to have peaked, Melbourne has become an attractive option for investors due to its potential for growth and relative affordability.
Melbourne selling agent Jamie Mi of Kay and Burton also notes increased demand from upgraders: "They see opportunity to buy at a good price and there are now more choices for them because of higher listings."
Premium Markets Leading the Charge
Perhaps the clearest sign of the market's changing dynamics is where the growth is occurring. CoreLogic data shows that the return to growth across Sydney and Melbourne is being driven by the more expensive end of the market, with upper quartile house values leading the monthly gains in both cities.
This pattern aligns with CoreLogic's historical research showing that premium housing markets in Sydney and Melbourne have traditionally been the most sensitive to rate cuts. As Tim Lawless explains: "The improved housing conditions have more to do with improved sentiment than any immediate improvement in borrowing capacity. Expectations of lower interest rates, which solidified in February, look to be flowing through to improved buyer sentiment."
Supply Constraints Supporting Growth
A critical factor underpinning February's price growth is the continuing supply constraint across major markets. New property listings across the combined capitals have declined significantly, tracking 4.7% lower than a year ago over the four weeks to February 23, and 1.5% below the previous five-year average.
This reduction in fresh inventory comes at a pivotal moment when buyer demand is strengthening following the rate cut. While total advertised supply is marginally higher than last year (up 1%), listings remain 7.9% below the previous five-year average, creating favorable conditions for price growth.
Tim Lawless of CoreLogic highlights the significance of this trend: "The reduced flow of fresh stock to market could be supporting some upward pressure on prices, especially if buyers are becoming more active amid higher sentiment and lower rates." He further notes that "the relatively strong clearance rates are probably an early sign that the advertised supply overhang is going to gradually reduce, which will eventually lift prices."
This supply-demand imbalance provides a strong foundation for sustained price growth as we move deeper into the rate-cutting cycle.
Market Balance Shifting
The market appears to be moving from a buyer's market toward a more balanced environment. "The downward pressure in values that we saw through late last year seems to be coming to an end, and we're now seeing a healthier balance between buyers and sellers," notes Lawless. "The relatively strong clearance rates are probably an early sign that the advertised supply overhang is going to gradually reduce, which will eventually lift prices."
Domain's chief of research and economics, Nicola Powell, agrees: "The rate cut is the spark that some buyers probably needed to feel that confidence to return into the market. I think Australians have been waiting for so long for that rate cut to come, and I think that is helping them make those purchasing decisions."
House vs. Unit Performance
February's data reveals a nuanced picture in the house versus unit market. While units slightly outperformed houses for the month (0.44% versus 0.39% growth nationally), houses maintain their edge in the longer term, with annual growth of 4.01% compared to 3.59% for units.
The pandemic-era divergence remains the most striking aspect of this relationship - house values have surged by an impressive 52% nationally since early 2020, while unit values have increased by just 26%. This substantial gap has created a compelling value proposition, particularly in markets like Melbourne.
Home Price Growth
February's slight outperformance of units may signal the beginning of a value convergence as affordability constraints push more buyers toward unit living in premium locations. As interest rates decline and borrowing capacities increase, this relationship between houses and units will be a key indicator of where the smartest investment opportunities lie in this new growth phase.
Market Outlook
The February figures confirm what our previous updates have suggested – we're entering a new phase in the property cycle, with rate cuts catalysing renewed growth. The structural factors underpinning home prices remain firmly in place:
- Population growth remains elevated, though it has begun to moderate
- Building activity continues to face challenges, despite completions moving higher and building approvals stabilising
- A chronic shortage of housing persists across most markets
With further rate cuts expected throughout 2025, the current market momentum appears sustainable, particularly in markets like Melbourne where affordability advantages provide room for growth.
Tim Lawless believes investors will return to Melbourne as capital gains emerge: "Investors have largely abandoned Melbourne due to high taxes and other policies, but I suspect they will return once we start to see some evidence of capital gains emerging in the city."
Implications for Property Investors
For property investors, the February data presents several important strategic considerations:
- Timing considerations: Early signs of FOMO returning to the market suggest that the window for countercyclical buying may be closing rapidly
- Melbourne's value proposition: With Melbourne now showing the strongest price growth among capitals while remaining significantly more affordable than most, it presents a compelling opportunity for both yield and capital growth
- Interstate opportunities: As Melbourne investor Eleanor Creagh notes, "It's the impact of the wealth effect. They've got equity and they're feeling like they can do something. They're looking for a different market."
How Futurerent Can Help
As we enter this new phase of the property cycle, many of our clients are positioning themselves to capitalise on the improved market conditions across Australia. With positive momentum building in all major markets and the rate cut cycle just beginning, strategic investors are identifying opportunities in various locations based on their specific growth drivers.
Whether you're looking to:
- Take advantage of rebounding markets in Sydney and Melbourne
- Capture continued growth in the strong performing markets of Brisbane, Perth and Adelaide
- Undertake value-add projects to maximise returns in your existing portfolio
Our team can help you access the capital you need to move quickly before market competition intensifies.
.jpg)
