Melbourne home prices are facing an up to $40,000 drop across 2025 in the city’s second straight year of home value falls, with inner-city areas at the greatest risk.

Respected property pundit SQM Research founder Louis Christopher has forecast the Victorian capital will continue to lose ground until an interest-rate cut, most likely around the middle of the next year.

But even with a change in the housing market’s fortunes when the Reserve Bank lower the cash rate, Melbourne’s typical home price is predicted to end next year 1-5 per cent down.

Contrasted with PropTrack’s $793,000 median dwelling value at the start of November, the forecast translates to anywhere from $7,930 to $39,650.

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Mr Christopher said he was expecting a “V-shaped recovery” to commence the moment there was an interest-rate cut announced by the Reserve Bank of Australia, most likely in mid-2025.

However, he said home value losses early in the year would outpace gains in the second half.

“It’s not the smallest correction, but it will be less than 2018,” he said.

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The depth of the losses will depend on when the Reserve Bank makes the cut.

Mr Christopher’s Housing Boom and Bust Report for 2025 noted that Melbourne’s only chance of growing in value in the coming year is if the Reserve Bank cuts rates by March, which would leave enough time for the city’s median home price to rise anywhere from $15,860 (2 per cent) to $47,580 (6 per cent).

But the situation could be far worse if the RBA doesn’t cut rates at all and the Coalition takes power at the next federal election and is able to quickly slash migration numbers.

SQM Research director Louis Christopher said Melbourne’s only chance of growing in value in the coming year is if the RBA cuts rates by March.

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In that scenario, and if Australia’s population growth falls below 400,000, Mr Christopher has tipped an as much as $71,370 (9 per cent) hit the median home price.

While the least likely scenario, Mr Christopher said he wasn’t ruling it out as a possibility.

“But I strongly believe that overall population growth is putting a floor under the market,” he said.

Other factors he flagged as making home value growth unlikely in 2025 were Melbourne’s lack of affordable housing options, and the parts of the city that were oversupplied with homes — particularly inner suburbs.

Describing Melbourne as a buyers market, Mr Christopher said now was window for prospective buyers to be doing their research in order to get the most they could in the first half of 2025.

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In 2023, Mr Christopher predicted Melbourne’s median home value would lose 1-3 per cent across the course of this year.

He is currently tracking it as down by 1.9 per cent so far in 2024.

Added to next year’s forecast, he now sees it as likely Melbourne will endure a two-year decline that will reduce the city’s median price by as much as 7 per cent.

“It’s a bit of a repeat of what we did this year,” Mr Christopher said.

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