Melbourne has retained its title as Australia's second-most affordable capital city, behind only Darwin, even as the local market edges higher in value.

Fresh figures from property research group Cotality show Melbourne's median house price is now $803,424, after posting a 0.4 per cent rise in July.

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Prices have climbed 1.2 per cent over the past three months and 0.5 per cent over the year, delivering a total return of 4.3 per cent for homeowners.

Nationally, the median dwelling value has reached $844,000, a 0.6 per cent gain last month and a 3.7 per cent rise over the past year.

The lift in prices follows the Reserve Bank's February interest rate cut, which has boosted buyers' borrowing power and helped reignite activity across the housing market.

Cotality head of research Eliza Owen said the rate cut had "taken home values about 3 per cent higher through the year to date, or the equivalent of another $25,000 being added to the median dwelling value in Australia".

Gains are now being recorded in every capital city, reflecting a broad-based recovery.

Darwin was the standout performer in July with a 2.2 per cent monthly jump, still holding the crown as the nation's most affordable market.

"When it comes to Darwin, it's a low price point, but it's also got strong gross rent yields," Ms Owen said. "Investors are seeing an opportunity not just for short-term capital growth but for solid rental returns."

While Perth (up 0.9 per cent), Brisbane and Adelaide (each up 0.7 per cent) posted stronger growth than Melbourne, the city's steady gains come amid challenging affordability conditions.

Economists warn that while lower interest rates are drawing more buyers into the market, high prices and deposit hurdles continue to lock out many first-home buyers, especially with cost-of-living pressures eroding household savings.

A shortage of homes for sale is adding further upward pressure to prices. Listings remain almost 20 per cent below the five-year average, while auction clearance rates remain robust, signalling strong competition among buyers.

Finding opportunities under the median price

For those looking to buy below the median price, there are still pockets of opportunity.

In the west, suburbs like St Albans, Deer Park, and Ardeer offer family homes with strong transport links.

Similarly, the north provides great value in suburbs like Thomastown and Lalor, which boast good city access and growing infrastructure.

For buyers willing to look beyond the city, regional centers continue to offer strong value.

Bendigo, Ballarat, and Geelong provide a mix of affordable housing, growing infrastructure, and community amenities.

With improved rail links and an increase in flexible work arrangements, many buyers are finding they can achieve their homeownership goals in regional Victoria without sacrificing their careers.

An example of what you can buy below the median house price is this charming Victorian cottage at 71 Saffron Street, Newtown in Geelong.

Listed by Buxton, this home has a price guide of $779,000 to $849,000, which sits comfortably within Melbourne's median range. The home perfectly blends original features like high ceilings and fireplaces with modern updates.

Located in a bustling café precinct and just minutes from the Barwon River, it's also in the coveted Chilwell Primary School zone. This property offers a fantastic balance of lifestyle, space, and long-term value, making it a great option for a wide range of buyers. The auction is scheduled for this weekend.

Looking ahead, analysts expect prices to rise modestly through the rest of 2025.

Another rate cut in September could add fuel to demand, but stretched affordability is likely to keep growth in check.

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