September 2026 column
The slowdown in the Victorian housing market remains evident although there was a surprise increase in Melbourne property prices over the month according to REIV data. Properties are taking longer to sell than a year ago and the volume of stock for sale remains elevated whilst the industry reports lower auction clearance rates and fewer active buyers in the market.
Since last month, we’ve had new housing data as well as updates on inflation, economic growth and household spending, and all of it points to the need for interest rates to increase further.
If another interest rate hike occurs, this is likely to further dampen buyer confidence in the housing market.
Let’s take a look at what we’ve seen in the data of late.
Inflation remains too high
The latest monthly inflation data for July 2026 found that headline inflation was 3.5 per cent over the year, down from 3.8 per cent the previous month, and underlying inflation was 3.6 per cent and unchanged from the previous month.
The slowing of the annual growth in headline inflation was expected, in fact even with the slowing of the growth it was stronger than forecast. This was also before there was a surge in the oil price, which will add to inflationary pressures.
The housing group has seen the strongest inflation over the year at 5.0 per cent, although growth slowed over the month; that could again be short-lived with oil prices rising.
Melbourne, along with Sydney and Canberra, had the lowest annual rate of inflation of the capital cities at 3.2 per cent.
Although inflation moderated, it was still much stronger than forecast and higher oil prices are expected to feed into higher inflation. As a result, this release increased the likelihood that the RBA will have to raise rates again.
Economic growth slows but was above forecasts made less than three weeks earlier
Over the past month the Australian Bureau of Statistics (ABS) published the National Accounts for the June 2026 quarter. The data showed that the economy grew by 0.4 per cent over the quarter and by 2.1 per cent over the year. The quarterly growth was marginally higher than the previous quarter whilst the annual rate of growth slowed from 2.5 per cent.
Even though economic growth slowed, the RBA published forecasts three weeks earlier that had annual economic growth at 1.9 per cent. With productivity falling by 0.2 per cent over the year, stronger than forecast economic growth will add to inflationary pressures. This is further highlighted by the fact that unit labour costs are up 3.6 per cent on the year.
The economy certainly isn’t growing rapidly but with productivity reducing and labour costs growing faster than inflation, even 2.1 per cent economic growth is likely to add to inflationary pressures.
This release further increased the likelihood of the RBA having to lift interest rates as soon as later this month when they next meet.
We hear a lot about the cost-of-living crisis but household spending is still incredibly strong
The July 2026 Monthly Household Spending Indicator from the ABS had household spending increasing 1.1 per cent over the month and by 7.0 per cent over the year, the fastest annual rate of growth since June 2023. This rate of growth in spending is much greater than inflation.
Importantly, the growth in household spending over the year has been much stronger for discretionary (or non-essential) spending (7.8 per cent) than non-discretionary (5.8 per cent) which suggests households are not really showing restraint in their spending despite relatively high interest rates.
Households in Victoria appear to be showing a little more restraint, with spending 6.2 per cent higher over the year, below the national rate, although it rose 1.3 per cent over the month but spending is still growing at a much faster rate than inflation.
In Victoria, the annual growth in discretionary spending (7.2 per cent) is also much greater than growth in non-discretionary (4.6 per cent) spending.
The data doesn’t delve into which households are spending more or less and it is reasonable to expect heavily indebted households have reduced spending. Nevertheless, this data lends weight to the argument that interest rates should be higher in order to curtail inflationary pressures.
Prices rise over the month but are lower over the year in Melbourne
According to the latest REIV data, the median sale price of a house in Melbourne in August 2026 was $928,000 and it was 4.9 per cent higher over the month but 1.3 per cent lower than in August 2025.
Similarly, the median unit sale price in Melbourne rose 2.9 per cent over the month to $645,000 but it was 0.2 per cent lower than at the same time last year.
The housing market has eased over the past year with more properties for sale, longer selling times and a more balanced level of buyer demand. Recent data shows some softening in prices for houses and units in Melbourne.
Regional markets have recorded some movement in the median sale price over the month, but because of the earlier stronger price growth means prices are still higher than a year ago.
The median sale price of a house in regional Victoria was $665,000 in August 2026 and it was 0.7 per cent lower over the month and 5.3 per cent higher than a year ago.
The median sale price of a regional unit fell by 2.4 per cent over the month to $458,750 but it was still 3.1 per cent higher than in August 2025.
With the recent tax changes severely impacting buyer sentiment and the prospect of higher interest rates over the coming months, I expect that prices may show some softening over the coming months.
The seasonal ramp-up in new listings is slower, highlighting the caution about bringing properties to the market
Data from SQM Research found that the seasonal ramp-up in new listings we usually see in August was much softer than usual.
In August 2026, there were 18,370 new listings in Melbourne which was 0.3 per cent higher than the previous month and still 2.4 per cent higher than August 2025 but the increase relevant to the previous month was quite small.
Total property listings remain elevated and close to historic highs, although there was a slight fall over the month.
There were 48,475 total properties listed for sale in Melbourne in August 2026. It was encouraging to see total listings were 4.7 per cent lower over the month but they were still 22.0 per cent higher than in August 2025.
Right now, in Melbourne there are fewer active buyers, sales volumes are lower and at the same time the volume of stock available for sale is historically high.
From a vendor’s perspective, understanding the current market is essential. Working with your agent and adapting to the market conditions will help secure a sale.
From an agent’s perspective, having honest conversations with vendors is essential in the current market. Setting realistic expectations early can help position the listings for a successful outcome.
Buyers are very much in the driver’s seat right now with less competition and plenty of choice. They have the luxury of taking time to make a decision and negotiating a good price in most instances.
Days on market rose over the month and year as selling conditions get tougher
In August 2026, the median days on market for private sales in Melbourne was 48 days which was up from 46 days in July and 34 days in August last year.
The data is also available across the inner, middle and outer suburbs and all have seen an increase in days on market over the month and year with outer suburbs seeing the largest increase and now having the longest days on market. A year ago, the outer suburbs had the shortest median days on market.
In regional Victoria, private sales had a median time on market of 56 days in August 2026 which was up from 47 days in July but lower than the 60 days at the same time last year.
With heightened levels of stock for sale in Melbourne, slower buyer demand and moderate sales volumes; it’s little surprise to see that the selling time is increasing and this is expected to continue.
The regional Victorian market is also slowing and there was a large monthly increase in days on market. With stock levels rising and buyer demand slowing I expect days on market regionally will also climb from here.
If vendors truly wish to sell in the market, setting realistic price expectations and adjusting to market feedback is essential given the high volume of competing stock available for sale.
Rental growth slows at a seasonally quieter time of year
The median weekly rent for a house in Melbourne in August 2026 was $600 per week, having not changed over the month and rising 3.4 per cent over the year. Renting a house in Melbourne remains affordable relative to other capital cities.
The median unit rent in Melbourne was also $600 per week and was unchanged over the month but 5.3 per cent higher than a year ago.
Although the cost of renting is cheaper than other cities, Melbourne continues to experience a relatively high rental vacancy rate at 2.5 per cent in August 2026, down from 2.6 per cent in July but up from 2.4 per cent in August 2025.
In regional Victoria, the median rent was $530 per week for a house in August 2026 and rents were unchanged over the month but 6.0 per cent higher than a year ago.
The median unit rent in regional Victoria was $410 per week and fell by 2.4 per cent over the month but was 2.5 per cent higher over the year.
The REIV reports that the rental vacancy rate in regional Victoria is also relatively high at 2.5 per cent which was unchanged over the month but up from 1.9 per cent a year ago.
Final thoughts
There is clear evidence both nationally and in Victoria that demand for housing is slowing, which isn’t really a surprise given how persistent inflation is, how high interest rates are and how unaffordable housing has become. Although I should note price growth in Melbourne has been relatively weak over recent years, so it is the other factors weighing down the market performance there.
More recently, significant changes to the tax treatment of investment properties have affected the confidence in the housing market, which is driving a reluctance from buyers to purchase and reducing overall buyer numbers.
In Victoria, despite strong relative affordability, confidence in the market has been weak for many years and the market continues to experience a high volume of stock for sale. When you have a lot of properties for sale and fewer buyers active, that is a recipe for lower prices and reduced turnover.
Although rents have increased, Victoria remains relatively more affordable to rent in than most other states and is seeing higher rental vacancy rates too. In saying that, rental yields are becoming increasingly attractive in the state and with rental returns increasingly important under the new tax regime, this could attract more housing investment into the state once confidence improves.
The market is continuing to experience high supply and low demand for properties for sale and relatively better availability of rental properties. Some people may say this is a bad thing but for those that want to buy or rent, it is certainly a positive.
If you are an agent in this market, I think it’s important to be selective about which vendors you work for. Managing price expectations is essential and if the vendor doesn’t want to take on board your advice and the market’s feedback, then it might be worth reassessing the campaign approach. Sales are challenging in current market and you want to ensure the effort is directed towards realistic outcomes.
Vendors need to understand that the market doesn’t respond to price expectations alone. With fewer buyers, it is less likely to achieve the expectation above market. If their expectation doesn’t align with the market conditions, perhaps it’s the time to reconsider going to the market.
Buyers are in a strong position right now with a lot of choice and less competition. They don’t need to be in a hurry to make a decision and have strong scope to negotiate on price.
Renters are seeing relatively high vacancy rates which means that they have some scope to negotiate on price.
Landlords need to be cautious about how much they try to increase rents because the ongoing high rate of inflation means there are limits to how much more renters can spend on their accommodation.
About Cameron Kusher
Over the last 20 years Cameron has worked as a property researcher for major businesses such as PRDnationwide, CoreLogic (now Cotality) and REA Group.
Cameron spent 12 years at CoreLogic as the Head of Research for Australia and 5.5 years at REA Group as the Director of Economic Research. Over the past 17 years he has become a well-regarded thought-leader on the residential property market and delivered thousands of presentations to the industry, customers and consumers.
He is passionate about taking complex economic and property insights and making them easy for anyone to understand, free of the jargon that most economic and property presentations tend to contain.