A Melbourne couple on a joint income that could shortlist 210 suburbs in October 2025 can now shortlist 146. Over that stretch, the median house price slipped. The suburb list still shrank by 62.
That gap is the story. Affordability is not a price. It is a price run through a lender’s serviceability test, and the test has become harsher.
Why a cheaper house can still need a bigger income
A comparison-site study of two-person households found the income needed to buy a median Melbourne house rose from $135,268 to $139,362 over the period. That is roughly $4,100 more a year, even with prices softer.
The mechanics are simple. Lenders do not assess you at today’s rate. They add a buffer, 3 per cent in the study’s modelling, on top of the actual rate. When the cash rate climbs to 4.6%, the stressed rate climbs with it, and the maximum loan a given income can support drops. A small fall in price cannot offset a larger fall in what the bank will lend.
Key numbers
- Suburbs affordable to a couple targeting a $960,000 house: 146, down from 210
- Income needed for a median Melbourne house: $139,362, up from $135,268
- Geelong median house price: about $1m, needing a joint income of $142,946, up from $124,000
- Modelling assumed: 20 per cent deposit, $48,000 in yearly expenses, 3 per cent rate buffer
Where the squeeze lands hardest
Geelong is the sharpest example in the study. Its median house hit $1m, and the joint income needed rose by almost $19,000 in the period. Buyers there are not just competing on price. They are competing against their own borrowing ceiling.
At the other end, the cheapest options in the study were Melton at $570,000, Melton South at $580,000 and Wyndham Vale at $610,000. These are the places a squeezed couple gets pushed toward, which concentrates demand in a narrow band of outer-western suburbs and adds pressure to entry-level stock there.
The study’s head of research argues the usual link between price and affordability has weakened. That fits the arithmetic. In a rising-rate environment, repayments, not sticker prices, decide who qualifies.
The catch for anyone waiting for prices to fall
Many buyers hold off in the hope that a fall in prices will rescue them. This data says the wait may not pay off if rates keep rising. Our guide to RBA interest rates and mortgage repayments explains how a rate move flows through to borrowing power.
There is also a forward risk. The study notes major banks have flagged another 0.25 per cent cash rate rise as a possibility. If that lands, the ceiling drops again. Our look at the cash rate hold at 4.6% covers what a pause does and does not change.
It is worth being careful here. This is one study, built on stated assumptions about deposit size, living costs and the buffer. A household with a bigger deposit or lower expenses will get a different answer. Treat the figures as a direction, not a personal quote.
What buyers are actually doing
A buyers’ agent quoted in the coverage expects cautious purchasing and says compromise is common, often by shifting to adjacent suburbs. One couple, priced out of inner-north suburbs, ended up buying in West Melbourne.
That is the practical pattern: not abandoning the market, but trading location for loan size. It also spreads demand outward, which can lift prices in the next ring of suburbs even as the headline median eases. That helps explain why a falling median does not always help the person at the front door.
Who this leaves out
The cohort most exposed is the dual-income couple without much equity, stretching to reach a median-priced house. They are the buyers a price fall is supposed to help, and they are the ones a higher buffer hits hardest. That has flow-on effects for first-home-buyer demand and, over time, for rental demand, because people who cannot buy keep renting. Our piece on record rents above $675 a week shows how tight that side of the market already is.
Investors face a different version of the same squeeze. Higher rates cut borrowing capacity and lift holding costs, which can thin out the pool of buyers competing at the lower end.
A practical next step
If you are planning to buy, get a serviceability estimate at today’s rate plus a buffer, then test it at a further 0.25 per cent higher. Choose your target suburbs from that number, not from last year’s price trends. If the result is tight, a larger deposit or lower expenses will often move the ceiling more than a hoped-for price fall.
Subscribe to the newsletter for the weekly read on rates, credit and what moves borrowing power.
General info, not financial advice.
