Melbourne has overtaken Sydney as the country's hottest housing market as its cheaper house prices lure more interstate migrants.

Home prices in the Victorian capital climbed 1.4 per cent for a third consecutive week in the seven days to July 16, data from property analytics firm CoreLogic show.

Sydney prices rose just 0.7 per cent in the past week, with monthly growth in the harbour city slowing from 3.4 to 3.1 per cent over seven days.

Melbourne’s monthly growth accelerated from 4.3 to 5.0 per cent in the same time despite lenders increasing interest-only mortgage rates in response to regulatory intervention designed to limit riskier lending and reduce risks arising from record household debt.

CoreLogic research analyst Cameron Kusher said interstate migration is a lot stronger in Victoria than in NSW and fuelling this is Melbourne’s cheaper property prices.

He said most of the country’s job opportunities are in Sydney and Melbourne and people are choosing the latter largely because its homes are still much more affordable.

“The interstate migration is fuelling Melbourne’s housing demand,” Mr Kusher said.

“Sydney is more expensive, there’s not as many interstate migrants and there’s more properties up for sale compared to a year ago, while in Melbourne it is only marginally higher than a year ago.”

Official statistics showed Melbourne had the highest net interstate migration gains of all major capital cities in 2014/15, while Sydney had the highest net losses.

The latest census data backed up this trend with data showing that, while NSW remains the most populous state, it’s not growing as quickly as other states.

Melbourne’s population of 4.4 million is closing fast on Sydney’s 4.8 million.

Mr Kusher said investors have also played a bigger part in Sydney’s property market than in Melbourne.

And as a result, Sydney has been more affected by Australian Prudential Regulatory Authority changes that have led to higher interest-only mortgage rates from the country’s major lenders.

And while first-time buyer levels are low across the country, they are higher in Victoria than in NSW because the cost of new land in the outskirts of Melbourne is a lot cheaper than in Sydney, Mr Kusher added.
The median house price in Melbourne last week was $710,000 and $529,000 for a unit, while Sydney’s median is $950,000 for a house and $720,000 for a unit.

Melbourne was also the most active market with the highest number of scheduled auctions and best clearance rate, the latest weekly CoreLogic data showed.

However, the total number of homes up for auction across Sydney, Melbourne, Brisbane, Adelaide and Perth fell for a fourth week in a row.

A patchy housing market and an elevated level of underemployment were among the reasons the Reserve Bank of Australia decided to leave the cash rate unchanged at its last meeting.

The RBA board discussed the varied conditions in the established housing and new construction markets, noting strength in Sydney and Melbourne and weakness in Perth, minutes from the central bank’s July meeting show.

The board noted the unemployment rate had dropped to its lowest level since 2013, but also recognised that the underemployment rate, which measures the number of workers wanting more work, remained elevated.

CORELOGIC CAPITAL CITY HOME VALUE CHANGES FOR 2016/17

• Australia 9.6 per cent
• Sydney 12.2 per cent
• Melbourne 13.7 cent
• Brisbane 2.0 per cent
• Adelaide 2.4 per cent
• Perth -1.3 per cent
• Hobart 6.8 per cent
• Darwin -7.0 per cent
• Canberra 9.6 per cent

By Petrina Berry