Perth vs Melbourne: Which Market Will Boom in 2025?

Perth has created so many property millionaires over the last few years, while Melbourne, over the same time frame, in a lot of places has actually gone backwards. In this episode, we're going to unpack how both markets actually look entering the second quarter of 2025, understanding the market pressure on each city, cash flow and yields, and how your current investment goals could actually shape the direction you take in choosing either Perth or Melbourne. This episode is going to be a cracker. I'm Arjun Paliwal. Let's get into it.

So there is a lot of talk between the two on Perth and Melbourne. And funnily enough, on our content, on our pages, they've both been the hottest discussion points. So I thought, why not do them both together and really unpack it for you today. Now, when it comes to Perth and Melbourne, here are the two at macro level signals being considered by many. Perth being at peak growth rates and coming off that, and then Melbourne being at the lowest of growth rates or even going backward and starting to come off that.

So you've got this peak coming off and then the bottom going up, which naturally makes everyone think that therefore this market is a bad one and this market's now a good one. But that's actually far from the truth. It's important to realize that you don't buy a whole market and coming off peak doesn't mean it's stopping the boom. Coming off peak doesn't mean a boom is ending and starting a new cycle does not mean that a market is booming. It's very important to consider that.

So let's firstly understand what peak growth rates were in markets like Perth. Perth actually had peak growth rates of between 20 to 30 percent in one year out of the last five years. That is huge, meaning that if you have 20 to 30 percent and you come down to say 10 to 20 percent, is that the end of the world? Because last time I checked, long term growth rates in Australia are actually between 5 to 7 percent over 20 to 40 years of data analyzed. If you're going from 10 to 20 percent, you could be making a big mistake in thinking that that growth is little to nothing.

And that is the biggest thing that people make the mistake on. I've seen this countless times, whether it was Hobart between 2016 and 2021, whether it was Sydney and Melbourne between 2012 and 2017. Having cycles in their peak growth rates were actually not the end of the cycles. Having cycles at peak growth rates is usually the middle to second half of the cycle, meaning that if you could reach a 20 to 30 percent at peak growth levels, housing markets don't instantly come off and suddenly go backwards from 20 percent of growth. You'll see this gradual come off because less and less buyers are active, more and more listings come up, things take longer to sell, more discounting occurs.

But someone who had a friend a day before sell a property for $100,000 more doesn't instantly come and look at their friend and go, well, the market cycle's changed. I now can't sell my place at that level. It has to see huge economic shifts, huge listing levels, huge shifts in structural parts of the market to actually make a city go from booming 20 to 30 percent to declining by 10 percent. So realizing that you could actually be missing out, for example, if a city goes from 20 to 30 to 10 to 20, that 10 to 20, if we take the middle point, is 15 percent of growth. And let's just say the next year it moves from 10 to 20 to 10 to 15.

That's now 12 and a half percent of growth at the middle point. That is now 27 and a half percent over two years. Now, let's just say the third year goes from 10 to 15 percent growth to five to 10. That's now seven and a half, which equals 35 percent growth over the three years. So suddenly you've got 35 percent growth over the three years.

But in another market, let's just say like Melbourne, what if you're going from zero percent to five percent to 10 percent to then 12 and a half? If you look at those numbers, the first year at five, the second year at 10 equals 15 combined and the third year at 12 and a half is 27 and a half combined. So even though one is coming down off a peak and reaching a higher number at 35 and another market is rising in a peak over the three year period, it's equal 27 and a half where the other markets achieve 35. So don't forget that even the ride off a cycle can produce game changing growth for a portfolio. But just you can't sit there expecting a market to do 20 to 30 percent every single year and keep doing that.

That's the mistake I see many people make. The second part to consider is what the data says by market segment, because remember, when you buy one house, you're not buying the whole city of Perth. And when you buy one house, you're not buying the whole city of Melbourne. Different markets exist. What we're noticing clearly in Perth is that the lowest quartile of prices is the market that is seeing the slowdown first.

And the slowdown, again, is not the 20 to 30 percent of growth coming backwards by 10 percent. It is just that slowdown from peak growth rates. They're still very undersupplied. They're still very tight, but they're just not booming to 20 to 30 percent growth rates as they did in the years prior. But if you look at the inner markets of growth in many areas or the higher price markets of growth, we're seeing different trends occur.

Let me take you through a few trends right now. So what we did is we looked at the days on market of the different price trends in the city. And what we saw was the under 750K market over the last two years of data is showing that days on market rolling is increasing on the sub 750K markets. Now, we are seeing increases of about 67 percent on days on market. Now, before that number scares you, just remember some of the days on markets for these regions in the sub 750 were between five and seven days or six and nine days, which is ridiculous.

So that means a 60 or 70 percent increase might only mean five to seven days of selling is actually eight to 12 days, which is still lightning fast in the grand scheme of things. But it's just moved from ridiculous amounts of heat to still very strong. Whereas the market segment of over one million dollars is actually only an increase of 12 percent in comparison. So that just shows that you've got three times faster rising days on market in the affordable segment, which has just gone from super strong to strong, whereas the inner markets are still very, very tight in the days on market with the higher price points achieving that number. So what's clear is we're noticing a shift of the higher price point markets that did not grow as much over the last five years in Perth now starting to be quite closely priced to the lower price markets that were once much more cheaper.

And that's offering an opportunity for upsizes or for people to actually look at opportunities in rings that haven't grown as much from an investment point of view. So this is the key thing to consider is that the city of Perth is not a boom that's ending. It's a boom that's come off peak growth rates that were unsustainable for any market to average for that long. And it could still average growth rates over the three years ahead because of the undersupply that could even be better than some of the other markets in comparison because they're starting a cycle versus just coming off a peak of a cycle. So the last thing to consider in Perth is inventory trends.

And that's another thing that people don't realize that you can still increase and come off peak, but still be very low and strong. So looking at Perth's data, we can see that the sub 750K inventory trends have actually increased over the last few months. And what's noticeable, though, is inventory did come down from March 2023 to three months of inventory or 2. 5 to three months of inventory all the way down to the lowest it's been, which is around that July 2024 to near one month for the 750K to one mil price point or about 1. 5 months for the other price points in the city of Perth.

So, yes, they've elevated, especially in the more affordable price points. But overall, they're still at inventory levels of below two and a half, which just showcase a very strong market still in play, but just less strength than the highest levels of growth in that market. What that shows is that inventory is still very strong, but it's just come off its absolute floor in the city of Perth. And that's the key things when analyzing Perth. Now let's go into Melbourne to see how Melbourne compares coming from a different cycle position and what to consider there.

In Melbourne, the first trend that's appearing is that there is a cycle shift, meaning we have gone to seven years of weakness and following the seven years of weakness, we're now starting to see some flattening, then slight improvements. Now, it's about where the improvements are that are the interesting point. The improvements are largely in the lower tiered or the lower price points or the outer rings right now when it comes to Melbourne's house market. And this can be evidenced by something called inventory levels. So if we take a look at February last year, Melbourne's lower market inventory was quite elevated at 4.

61 months. And by lower market, I mean under 750K house prices. But if we now look forward to Feb ending 2025 data, inventory levels 4. 49. So although a slight amount, there is an improvement, meaning the outer ring is improving.