As 2023 draws to a close, Victoria's property market resembles Charles Dickens' novel the Tale of Two Cities - but in this case it's the tale of those with a mortgage and those who don't owe anything to banks.

The former continue to be pummelled by interest rates, which continued to rise throughout 2023. The latest blow came on Melbourne Cup day when the official cash rate galloped away to 4.35 per cent pushing most commercial rates well above 6 per cent.

KR Peters Director Peter Nicolls said interest rates, immigration and soaring rents are the unfortunate property story of 2023.

"You'd have to say there is not much excitement in the market right now," said the property market veteran, who will soon mark 50 years in real estate.

"Prices have stopped climbing and buyers are being extremely cautious and very selective. They understand that repayments have gone through the roof, they understand their buying power has been diminished and they understand that there is a lot more properties to choose from."

To illustrate how the steam has come out of the market Mr Nicolls cites the example of a five bedroom, 40 square, fully upgrade home on a 514 square meter block in Pakenham that was recently sold by KR Peters.

Mr Nicolls said the home's replacement cost would be around the $1.050 million mark, however the home sold for $850,000.

"That result tells me that to sell your property you've got to meet what is being offered," he said.

Auction results also point a slowing market. Melbourne's auction clearance rate has dropped from 70 per cent in May to 60 per cent in November.

One thing property experts agree on, is that market has taken a lot longer to plateau than expected.

According to CoreLogic, national home values fell by -7.5 per cent and reached a floor in January 2023. Since then the market has done a U-turn, and risen by 8.1 per cent to reach a new record high in late November.

Mr Nicolls said this goes against traditional orthodoxy, whereby in times of rising interest rates the reverse should happen to property prices.

He said the federal government's ambitious immigration targets are causing demand for housing to stay strong despite the cost of money soaring and the erosion of buying power.

"Property prices have been resilient, which has surprised the market. But when you have 500,000 immigrants arrive in 12 months, bringing  money with them, that fuels demand, which is what we are seeing now.

"The only reason why were not in recession is migration. New immigrants are causing pent up demand for houses, to both buy and rent."

And despite the Reserve Bank of Australia indicating that the June rate rise was likely the last, another blow came in November and new RBA Governor Michele Bullock has indicated there may still be more to come.

"We were led to believe that the previous interest rate rise was the last and that the next rate announcement would be a cut not an increase, that we would see rates going down in early 2024. Then we were told late 2024," said Mr Nicolls.

"Some people were thinking 'I had better buy today before rates start falling', but it could well be that we see another rate rise.

"I thought prices would have stabilised or dropped after we had five or six interest rate rises. Now that it's got to 12 and 13 rises, it is starting to hurt."

Mr Nicolls said the millions of dollars owned in rates arrears to councils on the urban fringe also point to households under economic stress.

He fears unemployment will be on the rise next and "if people don't have jobs, they won't be able to make their repayments."

Mr Nicolls said the story is similar in the new home market which has "really slowed down".

"The time builders were taking to commence a home was 12 months and beyond. Now they are starting within three months of signing a contract, which is good for buyers.

"The big problem buyers have is that building contracts require progressive payments. Twelve months ago when rates were low, buyers could afford to pay rent and make progress payments. Now they are struggling to meet those commitments.

"I think that will open the door for builders to work with land developers on 10/90 contracts where buyers pay a 10 per cent deposit and the rest at completion. However, the builder then has to load into the price enough to cover his interest and make sure it doesn't affect cash flow."

On the plus side, Mr Nicolls said because the new home market had slowed more tradies are hunting for work and runaway costs had been curtailed.

The other third of Australians hurting are renters. Mr Nicolls said vacancies in the KR Peters property management division are less than one per cent and rental providers have increased rents to reflect the current market.

However, rental providers are also being squeezed.

"Many don't appreciate or understand how much rental providers are hurting. A rental provider has to cover insurance premiums which have nearly doubled, land tax which has also nearly doubled, rates and increasing interest payments. The holding costs are scary.

"A lot of rental providers are saying they've had enough. They feel too much pain and would rather alleviate that by selling."

Looking ahead to 2024, Mr Nicolls said if he was a betting man, the best case scenario was that the market would remain stable with no further price increases.

The worst case scenario is that prices could drop up to 5 per cent.

"I think that we're at a tipping point now. I think if rates rise again it will cause real pain.

"I hope we don't have a crash and a lot of people walk. It will be (collapsed US bank) Fannie Mae all over again and a lot of people will get hurt."