Is Now a Good Time to Buy in Melbourne? What the Investor Exodus Means for First Home Buyers

For owner-occupiers with secure finance and a long-term horizon, current conditions are increasingly favouring buyers. Melbourne dwelling values have fallen 0.8% over the month and 2.3% over the quarter, with the median dwelling value sitting at $812,621. At the same time, buyer's advocates report softer conditions across Victoria's prestige and inner-city markets as investors pull back. (OpenAgent)

Reduced investor competition means less bidding pressure on the types of properties many first home buyers target. However, affordability still comes down to your borrowing capacity, preferred suburbs, and long-term financial position—not trying to perfectly time the market.

Why Are Investors Leaving the Melbourne Market?

Two key factors are driving the current investor exodus.

The first is a trend that has been building for several years, with many investors exiting Victoria's rental market due to rising holding costs, particularly higher land taxes.

The second is the Federal Government's May 2026 Budget, which announced that negative gearing for established residential properties will be abolished from 1 July 2027 for properties purchased after 7:30pm on 12 May 2026. Existing investment properties are grandfathered, meaning owners can continue to claim negative gearing until those properties are sold. (ABC News)

Some interstate investors are also redirecting capital towards NSW and Queensland, where different tax settings and comparatively stronger buyer demand are creating more attractive investment conditions. (ABC News)

What the Data Shows Right Now

Auction results highlight just how much bargaining power has shifted toward buyers.

After sitting above 70% a year ago, Melbourne auction clearance rates have generally been tracking between the mid-40% and high-50% range through July 2026. During the week ending 5 July 2026, Melbourne recorded 219 passed-in properties, meaning a significant proportion of homes failed to sell under the hammer. (Cotality)

The Reserve Bank cash rate also remains at 4.35%, continuing to limit borrowing capacity and reducing competition from highly leveraged buyers. Combined with softer auction conditions and increasing levels of passed-in stock, buyer's advocates describe the current environment as one that rewards preparation, patience and strong negotiation rather than aggressive bidding. (ABC News)

What This Means for First Home Buyers

For owner-occupiers, the negative gearing changes have little direct impact because the policy applies only to investment purchases.

The more important decision is choosing the right suburb.

Well-connected, established suburbs with good transport, schools and amenities have historically offered stronger long-term appeal than purchasing on the outer fringe simply because prices appear lower. Even in a softer market, buying quality in the right location generally provides better long-term outcomes than chasing the cheapest available property.

For example, buyers with a $700,000 budget may now find more negotiating opportunities across established middle-ring suburbs than they would have twelve months ago. Withdrawn listings, passed-in auctions and vendors adjusting price expectations are creating opportunities that simply weren't available during stronger markets.

Should You Wait or Buy Now?

Trying to predict the exact bottom of the market is rarely successful.

If you're buying a home to live in for the next seven to ten years, today's softer conditions may present a better opportunity than waiting for sentiment to improve. Lower competition can often be more valuable than buying at the absolute lowest point in the cycle, particularly if increased buyer confidence later drives renewed competition.

That said, purchasing before you're financially ready simply because prices have softened can create unnecessary risk. Your borrowing capacity, emergency savings and lifestyle goals should always outweigh short-term market movements.

Getting Help With the Decision

A buyer's advocate can help first home buyers make the most of current market conditions by:

Negotiating directly on withdrawn, passed-in or reduced-price properties.

Identifying suburbs that balance affordability with transport, lifestyle and long-term growth potential.

Coordinating with mortgage brokers so borrowing capacity aligns with realistic suburb choices before inspections begin.

Providing independent advice focused solely on the buyer's interests.

Forge Real Estate offers independent buyer's advocacy for first home buyers navigating Melbourne's changing property market, helping clients secure the right property while taking advantage of the reduced competition created by the current investor pullback.

Forge Real Estate Melbourne can help you blueprint your future by finding the perfect blue-chip property where your lifestyle needs and investment goals converge.

📞 Phone: (03) 91003633

✉️ Email: info@forgeproperty.com.au

🌐 Website: www.forgerealestate.com.au

We offer specialized consultation and can assist in both Mandarin and Cantonese.