Sydney's hot property market has driven a solid rise in house prices in capital cities across the country.

House prices in state and territory capitals rose 1.8 per cent in the three months to June, better than the one per cent gain expected by economists.

For the year to June, the Australian Bureau of Statistics’ index of house prices rose 10.1 per cent, the third quarter in a row the annual rate was above 10 per cent.

Leading the charge was Sydney, where prices rose 15.6 per cent, with Melbourne posting a 9.3 per cent gain.

JP Morgan economist Tom Kennedy said it was too early to say if surging house prices might spark an interest rate rise by the Reserve Bank of Australia.

“At this stage we think the RBA is pretty comfortable with the housing sector,” he said.

“We don’t think that this is enough to get them over the line but certainly it would be something on their radar and they would be monitoring it quite closely.”

Mr Kennedy is concerned that house price growth was being inflated by the outsized gain in Sydney,

“The details suggest that this strength is landing in one property sector,” he said.

“We think that prices will moderate a little bit further as activity cools, particularly in Sydney where price growth remains very strong at levels that won’t be sustainable.”

However, Commonwealth Bank senior economist Michael Workman said the rapid pace of house price increases might be a concern for the central bank.

“The RBA would prefer to see an easing in dwelling price growth momentum,” he said.

“While rising asset prices are positive for household sentiment for households that own a dwelling, increases in property prices pose affordability issues and increase household debt.”

HIA economist Diwa Hopkins expects the pace of price rises to ease later in the year.

“Annual growth reached what looks to be a cyclical peak rate of 10.9 per cent in the March 2014 quarter,” she said.

Ms Hopkins expects the number of home building approvals to rise past 180,000 in 2014, after a gain of 170,00 last year.

She said this increased supply of housing will keep a lid on prices.

“Continuing improvements in the supply of dwellings will be important in taking some of the momentum out of dwelling price pressures, and we may already be seeing early signs of this,” she said.


* Sydney – up 15.6 pct

* Melbourne – up 9.3 pct

* Perth – up 3.6 pct

* Brisbane – up 6.8 pct

* Adelaide – up 5.6 pct

* Hobart – up 4.3 pct

* Darwin – up 3.4 pct

* Canberra – up 2.2 pct

(Source: Australian Bureau of Statistics)



By Jason Cadden