House price growth in Sydney and Melbourne more than doubled in the final three months of last year, the result of record-low borrowing costs and low stock levels.
Official figures on Tuesday showed Sydney houses jumped 6.1 per cent quarter on quarter from September's 2.9 per cent, while Melbourne surged to 6 per cent from 2.1 per cent, strengthening efforts by regulators to curb the growth in investor borrowing that is pushing housing prices higher.
Over the year, detached houses rose an average 8.9 per cent across the eight largest cities and units rose 4 per cent, the ABS figures showed. These were weaker than the numbers of provider CoreLogic, which reported 11.6 per cent rise in houses and 5.9 per cent for units, but those figures were inflated by a mid-year methodology change.
It was a year of strong results that benefited many property owners in the country's largest city. In Sydney's western suburb of Strathfield, Sebastian Bonaccorso, the managing director of real estate agency Elders Inner West and his wife Susan in June sold their five-bedroom family house in Agnes Street for $8.41 million, records show - more than three times the suburb's median price for the month of $2.42 million. They paid $1,775,000 for the property in 2002.
The strong growth has continued into the new year. In Leichhardt, a stone's throw from Strathfield, former mayor Evan Jones on Saturday sold his three-bedroom, one-bathroom brick house for $1,777,500 - 11 per cent above its $1.6 million reserve price.
"Competition was strong as buyers knew they weren't going to find one like it again," said agent Simone Azzi of Belle Property Annandale.
The Reserve Bank of Australia commented on the pickup in minutes published on Tuesday that documented its decision earlier this month to keep rates on hold.
"Over recent months, conditions appeared to have strengthened in Sydney and had remained strong in Melbourne; these cities had continued to record brisk growth in housing prices, and auction clearance rates had remained high," the central bank said.
The fast-rising property prices that are outstripping wage growth made homes overpriced, said economist Paul Dales.
"With household income per employee having stagnated in the fourth quarter of last year, the rise in prices has made housing look even more overvalued," said Mr Dales, Capital Economics' chief economist for Australia & New Zealand. "When compared to the average ratio to disposable income per employee between 1990 and 2015, housing now appears to be 44 per cent overvalued."
Tuesday's figures showed an average 4 per cent gain in overall dwelling prices - the fastest pace in at least five years - in the December quarter. It lifted the average home price to $656,800.
Detached houses in the eight capital cities rose an average 4.7 per cent, quarter on quarter.
Prices of units, and semi-detached and townhouse homes jumped 2.3 per cent, with Hobart (5.4 per cent) showing the fastest pace of quarter-on-quarter growth, followed by Sydney (3.1 per cent) and Melbourne (2.8 per cent).
Apartment prices fell in Brisbane for a second quarter.
The housing industry warned against blanket tightening and constricting a dwelling construction that has already peaked.
"There is some need to tighten lending conditions for some Australian housing markets in terms of geographical areas and dwelling types," said Housing Industry Association chief economist Harley Dale. "However, a blanket tightening of lending conditions – as now seems to be emerging again – is the wrong policy and risks damaging Australia's financial stability. That is the very opposite to the ideal outcome authorities want to achieve."
