Despite predictions that COVID-19 would lead to a property market collapse, house and unit prices in Melbourne hit record highs in December.

Domain data reveals the median house price in Melbourne is now an eye-watering $936,073, up by 5.3 per cent in the final three months of 2020.

Median prices for units rose by 4.4 per cent over the same period, to reach a record-high of $569,677.

The best performing region was the outer-east, where prices skyrocketed by 9.5 per cent over the quarter.

Economist at the Grattan Institute, Brendan Coates, says record-low interest rates are responsible for the surge.

“The biggest driver of why house prices are, as you say, going bananas, is the fact that interest rates have fallen so low,” he told Ross and Russel.

“There’s some work done by the Reserve Bank recently that suggested if the current rate cuts are seen as permanent then house prices rise by 30 per cent over a three year period.

“If they’re seen as just being temporary for a couple of years, during the recovery from COVID, then that price rise is still 10 per cent.

“That’s the number one reason why house prices are rising, because rates have been cut so people are having to spend less on their interest payments so they can borrow more and therefore they’re bidding more for the price of houses.”

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