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So many people invested in Melbourne in 2025. Some saw fantastic growth, while others are yet to see the markets really move. In this episode, I'm unpacking the list of the five worst suburbs in Melbourne you could have bought in 2025, explaining the data behind the low or no performance, so you can better spot the potential growth outliers moving into 2026. I'm Joan Ma, the Senior Research Analyst at InvestorKit, and now let's get into it. At the beginning of 2025, we selected the five worst Melbourne suburbs to buy in in 2025, and now this episode, we are reviewing the performance of these five suburbs and see how they have done over the past year.
We'll be starting with Melbourne 3000. It's a suburb full of apartments. 99% of the dwellings there are apartments. That's actually one of the major reasons we selected this suburb. Because of the high amount of unit supply, its long-term price growth was extremely low, just 4% increase in 10 years as of early 2025.
And also we were seeing high vacancy rate at 3. 3% compared to the extremely low vacancy rate in many other areas in Greater Melbourne. Thus, the suburb's rental growth at that time was zero over a year, while house rental prices surged by 10. 5%. That's the condition of last year, how it has performed in 2025.
Despite the affordability advantage, unit prices here didn't grow much over a year. We saw actually a 2. 7% decline compared to early 2025. Although there has been a small uptick by the end of 2025, the overall performance wasn't really impressive. And in terms of long-term growth, the past 10-year overall price growth became minus 8%.
So if you bought a unit at the end of 2015, early 2016, now you would have lost money just in the property value. We're still seeing high vacancy rate of 3% in the city area, but rental growth has improved a bit, 3% per year. That's just in line with the inflation. But to be fair, house rental prices didn't grow as much. We just saw 1% rental price increase in the Greater Melbourne area.
One of the reasons is that house rental prices after a few years of surge have become unaffordable, and that has pushed a lot of rental demand to the city centre unit markets, which were still very much affordable at the beginning of 2025. And in the second suburb we were talking about was North Melbourne 3051. Similar to Melbourne city centre, 68% of the dwellings here are apartments, and that's also caused an oversupply issue. At the beginning of last year, we were seeing building approval rate of 10%, much higher than the balanced level. Long-term growth, minus 4% in 10 years, so by beginning of last year, the 10-year growth was already negative.
Vacancy rate was 1. 7% with 4% rental growth. Not as bad as Melbourne CBD, but still lower than the house market performance. And one year later, incoming supply is still high up there, 9% building approval rate. Long-term price growth didn't improve much, still minus 4% over 10 years.
Affordability has helped a bit with the price growth. We actually saw a 5. 5% annual growth in the unit market, better than Greater Melbourne's overall house market performance. But if we compare this growth rate with the affordable house markets in Melbourne, for example, the outer rain suburbs in the north, west, or southeast, 5. 5% isn't really impressive.
Vacancy rate is staying at the same level, 1. 8%, with a rental growth of 8%, improved from last year. And also, same logic as what we saw in Melbourne CBD, units affordability has been attracting more rental demand. So for North Melbourne, performance has slightly improved from a year ago, but still not as impressive, especially if we are looking at its long-term performance. And the potential risk of a further oversupply.
And then the third suburb we were talking about was Fraser Rise, 3366. It's a suburb in the west, a newly developed suburb. The reason why we selected it was an oversupply in house. New house building approval rate was 28% of the current stock a year ago. Inventory was pushed up to 15 months of stock or even higher.
At that time, annual price growth was minus 07%, already lower than Greater Melbourne's overall performance. And how is it a year later? We're still seeing high level of incoming supply. New house building approval rate is now even higher, 34%. Inventory has declined as Melbourne, especially the relatively affordable suburbs, have been attracting much more demand over 2025.
So inventory has declined to 7. 4 months of stock, half of last year's level, but still much higher than our balanced level of 3 to 4, or Melbourne's average level of below 4 months of stock. Median house price is now attractive, 700,000, more affordable than many other Melbourne suburbs. But this affordability is not pushing prices to grow because of the oversupply issue. Over the past year, house prices further declined by 0.
6%. As a comparison, the next door suburb of Taylor's Hill, house prices have grown by 5. 5%. And if we look at other established suburbs in Melton, such as Melton South, Melton West, or Korongjang, their last one year growth have actually reached more than 10%. So for Fraser Rise, oversupply is killing the value growth.
And the fourth suburb we were talking about was Gisborne 3437. It's a suburb in far northwest. It was a really hot market during the pandemic boom from 2020 to 2022. But at the beginning of 2025, we were seeing really low market pressure with a 16 plus month of stock. And house prices declined by 9% over 2024.
And at that time, it was still trending downward. One year later, now the market pressure is gradually recovering. Inventory has come down to 10 months of stock, still high, but better than the same time last year. Days on market is also declining. Again, it is still high up at more than 70 days compared to Melbourne's average of 36 days.
Price has slowly increased by 2%. So market pressure is recovering, but is recovering slowly. One of the reasons is that the high price is still limiting the recovery. Being 55 kilometers northwest of CBD, the median house price there is now 1 million. In this high interest rate environment, that price level compared with the location, it is not attracting much demand.
Then the last suburb we were talking about was Sorrento in Mornington Peninsula, 3943 is its postcode. Very similar to Gisborne, it was a hot market, really hot market during the COVID boom. House prices increased by 63% in just three years. But at the end of 2025, market pressure was still declining. We saw high supply level of more than eight months of inventory.
Prices were still declining, 18% decline in one year. And at the same time, rental yield was low. So both price growth and cash flow were looking really not ideal. And one year later, now market pressure has stabilized, touched the bottom, but we're not seeing material improvement yet. Inventory is slightly lower than the same time last year, but it's still more than seven months of stock.
Days on market is also similar to last year, no change. Price continued to decline by 3% in a year. At the same time, rental prices even grow faster than sales prices. As a result, yields have improved to 2. 4%, better than 2.
1% last year, but still an extremely low level that cannot support a healthy cash flow. Again, cycle position paired with unaffordability are constraining the recovery of market pressure and property growth. So that's a detailed review of how the five worst suburbs in early 2025 have performed over the year. Some of them have performed a bit better than where it was last year, for example, Gisborne or Melbourne North. But overall, we're still seeing low performance or even no performance.
And the major two reasons causing that are one, oversupply, either in unit markets or in the house market, and two, affordability. Oversupply is an all-time constraint for growth or performance, and affordability is more specific for this period of time. In 2025, interest rates have been high, affordable markets have been more attractive to buyers, including investors and owner-occupiers, so affordable markets have been performing much better than more expensive markets. And moving into 2026, we're still expecting high interest rates. Affordable will still be one of the most important themes.
So looking forward, these high-priced markets, their market pressure is expected to continue to slowly recover instead of fast recover, as we see in Melbourne's northwest and east outer rain areas, especially in established areas where houses are still relatively affordable for local residents and investors from across the country. Any questions, any thoughts, please leave your comments below. I'm Junge, the Senior Research Analyst here at InvestorKit. I'll see you next time.
