Record low interest rates may spark double-digit growth in Sydney's property prices but job worries are likely to keep a lid on values across the rest of the country.
Official figures released this week show the Reserve Bank's rate cuts have sparked a recovery in lending and helped boost house prices despite the weaker employment outlook and sluggish economy.
Dwelling prices rose 2.4 per cent over the three months to June while the total value of loans rose 1.2 per cent for the month, taking them 13.5 per cent higher over the year.
"Sydney is one market where it [property] is moving now and is likely to accelerate," SQM Research director Louis Christopher said. "Over next 12 months, I wouldn't rule out double-digit growth."
The city's surge in prices — up 6.1 per cent in the year to June — was felt most in the inner-ring suburbs and driven by a severe shortage in homes for sale, Mr Christopher said.
The number of properties on the market has slumped below levels seen in 2009 after the global financial crisis, SQM's figures show.
Around the country there were signs lower interest rates were now filtering through to buyers in all segments of the market, Merrill Lynch economist Saul Eslake said.
Until recently, the recovery has been driven by investors looking for higher returns, particularly self- managed super funds shifting money from cash deposits into property.
The problem with a low interest rate, investor-led recovery was that investors preferred to buy established property rather than new homes. That was likely to push up prices rather than increasing supply, Mr Eslake said.
Melbourne, which has almost double the number of homes for sale as Sydney, has also seen a rise in prices, albeit at a slower pace.
Barry Plant director Mike McCarthy, whose franchise covers large areas of Melbourne's middle and outer suburbs, said prices were starting to rise after being flat for two years.
"It's been a gradually building trend since January," he said. "None of it adds up to boom times by any means."
Rate cuts were likely to help Brisbane and Adelaide, which were "treading water", Mr Christopher said. Perth and Darwin had peaked and were likely to slow over the next year.
Traditionally house prices have far more reactive to low interest rates than they are now.
First home buyers under 35 weren't doing well in the job market, which was having a "dampening" effect, Mr Eslake said.
"By historical standards, considering how low interest rates are now, it [the housing recovery] is fairly muted," he said.