House prices in most Australian cities are surging, with average prices nationally posting their first annual growth in 19 months, even as the economy continues to splutter.

Key points: Australian home prices rose an average of 1.7 per cent last month, with Sydney (2.7 per cent) and Melbourne (2.2 per cent) leading the gains

Australian home prices rose an average of 1.7 per cent last month, with Sydney (2.7 per cent) and Melbourne (2.2 per cent) leading the gains However, prices are still off their previous record highs in all capitals except Hobart and Canberra — more than 30 per cent down in Darwin and 21 per cent in Perth

However, prices are still off their previous record highs in all capitals except Hobart and Canberra — more than 30 per cent down in Darwin and 21 per cent in Perth CoreLogic expects Sydney and Melbourne to reach fresh record high home values within months

The widely watched CoreLogic home value index jumped 1.7 per cent nationally in October, taking the index to a small annual rise of 0.1 per cent.

CoreLogic's head of research, Tim Lawless, said that was the first national annual home price growth since April 2018.

"The synergy of a [cumulative] 75-basis-point rate cut from the Reserve Bank, a loosening in loan serviceability policy from APRA, and the removal of uncertainty around taxation reform following the federal election outcome are central to this recovery," Mr Lawless said.

"Additionally, we're seeing advertised stock levels persistently low, creating a sense of urgency in the market as buyer demand picks up.

"The prospect that interest rates are likely to fall further over the coming months and an improvement in housing affordability following the recent downturn are other factors supporting a lift in values."

However, the monthly gains in the index were more spectacular.

"Aussie home prices are booming. National property prices lifted by the most in 16 years in November. And in Australia's most populous city — Sydney — home prices surged by 2.7 per cent, posting the biggest monthly gain in 31 years," noted CommSec chief economist Ryan Felsman.

"Record-low mortgage rates and an easing in lending standards have seen a surge in demand."

There are early signs that more sellers are taking advantage of the rise in prices to put their properties on the market.

CoreLogic's weekly auction figures showed that more than 3,000 homes went under the hammer last weekend — the most since March 2018.

Despite more homes being up for sale, a preliminary clearance rate of 79 per cent across the capital cities was 10 percentage points higher than the previous weekend and almost double the 41 per cent recorded on the same weekend a year earlier.

Sydney's preliminary clearance rate of almost 85 per cent was near peak boom-time levels, while Melbourne's auction success rate of 78 per cent indicated further price rises.

New records likely within months

Given current market trends, Mr Lawless expects new price records in Australia's two biggest cities within months.

"Melbourne values are still down from their peak by nearly 4 per cent, so the recovery there is likely to be a little bit shorter, probably in the next two months," he told ABC News.

"And Sydney in the next four months. Sydney values are still down 8 per cent from their [2017] market peak."

AMP Capital's chief economist Shane Oliver agrees, and notes that current auction clearance rates point to price gains of 10-15 per cent in those two cities in 2020.

"The Australian property market — particularly Melbourne and Sydney — has gone from boom and FOMO in 2017 to slump and FONGO last year and now looks like its heading back to boom again with FOMO returning."

FOMO is fear of missing out on a rising market by delaying purchase; FONGO is fear of not getting out of a falling market by selling.

Hobart and Canberra home prices are already at record levels. By way of contrast, Perth is 21 per cent off its peak and Darwin prices have fallen more than 30 per cent.

However, Mr Lawless said the current breakneck pace of price increases in the two biggest capitals was unlikely to be sustainable for long, even if interest rates fell further.

"Annualising the growth rate over the past three months implies the national index is already tracking well above double-digit annual growth (+15.3 per cent), while Sydney and Melbourne dwellings are tracking around the mid-20 per cent range for annualised capital gains based on the most recent three-month trend," he said.

"Considering wages and household income growth remains low, economic conditions are losing momentum and housing affordability is once again worsening (from an already high base in the largest cities), there are likely to be some headwinds in maintaining such a fast recovery."

Very uneven house price boom

Moreover, the rebound in home prices is not uniform across the country.

While Sydney prices surged 2.7 per cent last month, Hobart jumped 2.3 per cent, Melbourne 2.2 per cent and Canberra 1.6 per cent, price rises were more subdued in Brisbane, Adelaide and Perth, while values in Darwin fell another 1.2 per cent.

Over the past quarter, only Sydney and Melbourne posted outsized gains, while Canberra, Hobart, Brisbane and Adelaide rose moderately and Perth and Darwin continued to fall.

Even within Sydney and Melbourne, CoreLogic's data show that more expensive areas were recording far bigger price increases than lower-priced suburbs.

The four strongest sub-regions for capital city price gains over the past year were Melbourne's inner-east, inner-Melbourne, Sydney's Hills district and the Harbour City's inner-west.

Overall, the quarterly price rise in the most valuable quarter of Sydney properties was 7.4 per cent, versus 3.8 per cent across the lower quartile, with a similar gap in Melbourne (8.1 versus 4.2 per cent).

"The stronger performance across the higher value end of the market can likely be attributed to a combination of values falling more in this sector during the downturn, as well as recent adjustments to serviceability rules which has boosted borrowing capacity," Mr Lawless explained.

"Additionally, the scarcity value of detached homes in many of the blue-chip property markets is another factor supporting strong capital gains."

However, Mr Lawless expects those gains to radiate outwards towards lower value regions as buyers again get priced out of premium areas.