Could you afford Melbourne's cheapest house?

The cheapest house bought in Melbourne last year was a three-bedroom weatherboard, just 18 kilometres north of the CBD.

It didn’t have a backyard and it had seen better days, but at just $227,000, the Dallas house was the literal bargain of the year.

In fact, it pretty much paid for itself. The tenants living there, paying $1100 rent a month, in theory cover repayments on a 5 per cent mortgage over 25 years, with a 20 per cent deposit ($45,400).

The house was near shops and a train station, and while many inner-city Melburnians may not describe 18 kilometres as exactly close to the city, for context, houses 40 kilometres west of Sydney are now selling for more than $1 million.

But before Melburnians can celebrate not having to move to Tamworth, it’s worth noting the brothers who bought the investment property got lucky. The Pyalong Crescent address is far from the typical Melbourne house and, even at the very bottom of the market, a house less than $250,000 is a rare find in the city.

Dallas is one of only nine suburbs with a median price under $400,000 — a dilemma for first home buyers, given the average loan size for first-time in the state is $323,900.

Although first home buyer numbers are on the rise in Victoria, they are below average and largely concentrated to the house and land package areas of the city, according to Domain Group chief economist Andrew Wilson.

“I think Melbourne still offers affordable opportunities, but there’s no doubt these areas are a little far flung in relation to the CBD and also underperformers in terms of local infrastructure, although that is improving,” Dr Wilson said.

One of the issues for those at the bottom of the market is that after years of subdued price growth, the budget end has not only caught up, it’s leading the city in terms of where prices are rising fastest, he said.

“We’ve seen a general revival in budget suburbs,” Dr Wilson said. “And we’ll continue to see value suburbs to the outer north and outer south east be the best performers this year, and that means we will get fewer and fewer suburbs with a median under $400,000.”

Another issue is that first home buyers are up against investors at the budget end, who are eyeing the possibility of capital growth from a low base and relatively healthy rental yields.

The investors who bought the cheapest house in Melbourne were adding it to their property portfolio, according to Stockdale & Leggo agent Ali Celik, who sold the property while he was with YPA Glenroy. He said the property didn’t sell for more because buyers were put off by the subdivided block and the vendors wanted a quick sale.

Investors are now the main buyer group in Dallas, a suburb where the median house price is $390,500, Mr Celik said.

Agents say it is a similar story in Melton, Melton South and around Frankston.

Adrian Foster, director of Hocking Stuart Frankston, describes the amount of interest from investors wanting to get into Frankston North as incredible.

“It defies belief the amount of calls we’re getting,” Mr Foster said, estimating that about 80 per cent of those calls were from investors.

He said he had seen multiple cases of investors having bought into the suburb a year ago at about $300,000, positively gearing that property for rent at $350 per week, and then easily sold it on 12 months later for $400,000 or more.