Key takeaways
Perth’s median home value ($787,000) has overtaken Melbourne’s ($782,000) for the first time in over a decade, according to the PropTrack May 2025 Home Price Index.
The headline might belong to Perth today, but the next wave of smart property investment gains could well be made in Melbourne.
It’s a classic case of buying counter-cyclically, where the fundamentals are strong, and the upside hasn’t yet been fully priced in.
In a striking shift that highlights how dynamic Australia’s property markets can be, Perth’s median home value has overtaken Melbourne’s for the first time in over a decade.
According to the latest PropTrack Home Price Index (May 2025), Perth’s median now sits at $787,000, nudging past Melbourne’s $782,000 , a reversal of what many considered the natural order of our major capitals.
Of course, overall “home price” indexes do not account for the varying composition of properties across different states.
For example, more than 30% of all dwellings in Melbourne are apartments while the percentage is much lower in Perth.
However, strategic investors will see this as a signal that markets are evolving in ways that create new opportunities.
Let’s see what’s behind this turnaround, why Melbourne has lagged (for now), and why the smart money should be looking carefully at Melbourne right now.
Perth’s rise: the story of an underdog turned darling
Perth’s property market has transformed from a laggard weighed down by the end of the mining boom to one of Australia’s hottest performers.
This didn’t happen by accident, it was the result of cyclical recovery, structural shifts, and strategic investor activity.
1. Affordability as a magnet
After years of price stagnation through the 2010s, Perth started the 2020s at a deep discount.
Note: Just five years ago, Perth’s median house prices were about 40% below Melbourne’s.
When interest rates rose in 2022, eroding borrowing capacity, east coast buyers and investors began to look west, where affordability, strong yields, and lifestyle factors combined into a compelling package.
Eleanor Creagh, senior economist at PropTrack, summed it up perfectly:
“Perth’s relative affordability was the key attractor.
It offered value, lifestyle, and strong rental returns, especially as investors sought markets where their money would stretch further and deliver better yields.”
2. Population surge and supply squeeze
WA’s population growth turbocharged demand.
Interstate migration flipped positive during the pandemic, and overseas arrivals have since surged.
But while demand ballooned, new housing supply lagged badly.
Builders battled high costs, skills shortages, and supply chain issues — meaning the homes simply weren’t getting built fast enough.
“When you have a population boom and not enough homes, prices have only one way to go — up,” Creagh observed.
3. Investor demand and rental dynamics
Add to this the tightest rental market in the country, with vacancy rates hovering near record lows and rents rising at double-digit annual rates in parts of Perth.
The result? Investors flooded in, chasing both capital growth and rental returns. The strong cash flow appeal only added fuel to the fire.
Why Melbourne lagged , and why that’s set to change
Now let’s turn our gaze to Melbourne – a city that, on paper, should be leading the nation, but has found itself on the back foot in recent years.
What held Melbourne back?
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Population growth stalled: Melbourne’s population engine sputtered during the pandemic. Net migration went into reverse as lockdowns dragged on.
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Tax hikes: The Victorian government’s 2023 budget hit investors hard, with increased land tax and property taxes on investment properties, dampening enthusiasm at a time when higher interest rates were already squeezing margins.
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Higher holding costs: The introduction of new minimum rental standards meant landlords faced higher compliance and maintenance costs.
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Subdued price growth: Over the past five years, Melbourne’s property prices have risen by less than 20%, compared to around 60% across the other capitals.
Despite this, Melbourne’s underlying strengths are unchanged:
- It remains Australia’s second-largest economy and one of the world’s most liveable cities.
- It is a magnet for skilled migrants — and migration is now rebounding strongly.
- Rental markets are tightening again — vacancy rates have fallen, and rents are climbing.
- The bulk of the regulatory and tax headwinds are already priced in — meaning future risks are lower.
As Eleanor Creagh puts it:
“Melbourne has faced cyclical challenges, but the fundamentals are solid.
As population growth accelerates and interest rates fall, the city is well-placed for a rebound.”
Why now could be Melbourne’s moment
If there’s one thing experienced investors know, it’s that markets move in cycles, and the best opportunities are found before the crowd returns.
Right now, Melbourne offers:
- Relative value: Prices remain almost 3% below their 2022 peak, giving buyers a rare window to acquire quality assets in a globally significant city at a discount.
- More rate cuts: With inflation moderating and growth slowing, most economists, expect interest rates to continue to fall. This will lift borrowing capacity and reignite demand.
- Tight rental market + rising rents: Investors can expect better yields and stronger cash flow, particularly in inner and middle-ring suburbs where demand is strongest.
- Population growth ramping up: Melbourne is once again the top destination for new migrants — and these new households need somewhere to live.
- Limited new supply: Despite recent approvals, actual construction remains sluggish thanks to builder insolvencies, cost blowouts, and delays. This means competition for well-located properties will intensify as demand lifts.
Final thoughts: why Melbourne is the smart play now
While Perth’s outperformance is impressive, and a deserved reward for those who invested early , the reality is that the best gains have already been banked by early movers.
Perth’s growth is now moderating, and affordability is starting to bite.
In contrast, Melbourne is sitting at a low point in its cycle, with fundamentals aligning for a resurgence.
The opportunity lies in:
- Securing investment-grade properties at prices that will look cheap in a few years.
- Locking in strong rental yields in a market where tenant demand is only going to increase.
- Riding the next growth cycle as rates fall and confidence returns.
In my view, this is the time to be strategic and counter-cyclical.
Perth might be the hero of today’s headlines, but Melbourne could well be the hero of tomorrow’s portfolio returns.
