Australia's housing market witnessed a turnaround in prices in August as it recorded the fastest monthly growth since 2017, figures from CoreLogic show.

Capital city prices rose by 1% in the month while values across the country gained 0.8%, reversing the two years of constant decline that dampened household wealth and confidence, undermined consumption, and slowed the entire economy.

Leading the charge were Sydney and Melbourne, where prices increased by 1.6% and 1.4%, respectively.

CoreLogic research director Tim Lawless said the significant lift in values over the month aligns with a consistent increase in auction clearance rates.

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"It's likely that buyer demand and confidence is responding to the positive effect of a stable federal government, as well lower interest rates, tax cuts and a subtle easing in credit policy," he told Reuters.

Lawless said while the apparent recovery would be able to help lift consumption — a factor closely being watched by the central bank — regulators must observe where the market would go. 

"If the strong rises in values continue over coming months, we would not be surprised to see a new round of macro-prudential policies introduced in order to keep debt levels in check and encourage spending in other areas of the economy," he said.

Westpac senior economist Matthew Hassan believes the upcoming spring season could further drive activity in the housing market, boosting the number of listed properties.

"That said the uplift is only slightly stronger than the typical seasonal rise – with new listings coming from an extremely low starting point that suggests supply will remain relatively tight unless there is a sudden lift in the next few weeks," he told Reuters.