Melbourne's housing market has bounced back, regaining all the ground lost during the 2010-12 property slump, according to the latest figures.
The city's housing sector, which for two years struggled with falling house prices and grim predictions of an ongoing slump, appears to be recovering on the back of strong auction sales and rising prices in the eastern suburbs.
The Real Estate Institute of Victoria says Melbourne's median house price hit a new peak of $562,000 after rising 2.4 per cent, seasonally adjusted, in the June quarter.
The turnaround is being attributed to the record low interest rate and improving confidence in the health of the property market that has come despite signs the Victorian economy is weak.
"There is no doubt the market has recovered. After two quarters of growth it's clear the recovery is sustained but it's also a positive that the growth is much more moderate than in the previous two cycles where the sharp price rises weren't sustainable," REIV spokesman Robert Larocca said.
"It does make it easier for buyers planning to purchase over spring and summer because they are not walking into a rapidly rising market where their expectations could be confounded."
Upmarket eastern locales such has Hawthorn East, Glen Iris, Malvern East and Kew have topped the list of the city's best performers after posting price growth of more than 20 per cent. Each of these suburbs - which now have median prices of $1.2 million to $1.51 million - experienced price rises of up to $315,000 over the quarter.
More tempered rises were witnessed in many other inner and middle-ring suburbs, which experts attribute to the renewed strength of the auction market over the past six months. The clearance rate has averaged about 70 per cent in the three months to June, 10 percentage points higher than at the same time last year.
Buyer's advocate Catherine Cashmore said investor activity had picked up considerably in the inner and middle suburbs, with renewed competition encouraging buyers to pay above what comparable sales would warrant.
"A lot of this is down to the nature of auctions. Buyers, who can see that competition and keep missing out, are deciding to pay that little bit more so they don't miss out again," she said.
"Auction markets are quite destructive to buyers because they push prices higher than if you were negotiating behind closed doors."
The REIV also reports that Melbourne's median house price rose by a strong 8.4 per cent in the year to June, making it one of the strongest performances recorded in years.
But MacroBusiness economist Leith van Onselen cautioned that while the market was recovering, the REIV's estimate of the rate of growth was likely "unrealistic".
"This 8.4 per cent jump over the year is double what has been found by every other data provider, which use much more sophisticated methodologies that adjust for the different types and prices of dwellings that are sold," he said.