According to the latest results from RP Data CoreLogic Hedonic Home Value Index, capital city dwelling values jumped 4.2% over the three months to the end of August.
The last time this happened was seven years ago during the winter months of 2007.
Melbourne outperformed the rest of the country with a staggering 6.4% growth in median values, while Sydney values climbed 5% during the same period.
A surprise gainer was Canberra where values rose 2.5% lifted by strong demand for detached houses.
RP Data research director Tim Lawless said that, with September 1 marking the first day of spring, listing numbers were likely to rise over the coming month - which would provide a real test for the property market.
“Considering the ongoing high rate of auction clearance rates, a generally rapid rate of sale and the ongoing low interest rate environment, it’s likely that dwelling values will rise even further over the next three months.”
Lawless expects consumer confidence to recover further after a post-budget slump, and this would add fuel to the exuberant buying and selling conditions seen over winter.
The report also showed rental rates continuing to rise at a much slower rate than dwelling values.
Across the combined capital cities, the typical gross yield on a house has dropped from 4.1% to 3.7% over the past twelve months.
The softening in rental yields across each of the capital cities is likely to continue – with the most significant drop to take place in Sydney and Melbourne according to RP Data.
Lawless said that with yields so low in the cities which are seeing the largest capital gains, it was clear that investors remain focused on value growth rather than yield.
“But, potentially, there are better investment returns to be had in the smaller capital cities where the growth trend is less mature and yields are also healthier,” he added.
RP Data CoreLogic index highlights over the three months to August 2014:
- Best performing capital city: Melbourne +6.4%
- Weakest performing capital city: Hobart, -0.8%
- Highest rental yields: Darwin houses with gross rental yield of 5.9% and Darwin units at 5.8%
- Lowest rental yields: Melbourne houses with gross rental yield of 3.2% and Melbourne units at 4.2%
- Most expensive city: Sydney with a median dwelling price of $650,000
- Most affordable city: Hobart with a median dwelling price of $310,000