Very strong home price gains in Sydney and Melbourne last month are driving national average dwelling values higher, but analysts caution August's sharp bump is not necessarily the beginning of a fresh boom.

Key points: Capital city home prices rose an average of 1pc in August, driven by a 1.6pc rise in Sydney and 1.4pc in Melbourne

Capital city home prices rose an average of 1pc in August, driven by a 1.6pc rise in Sydney and 1.4pc in Melbourne Five of the eight capital cities had price rises, but Darwin (-1.2pc), Perth (-0.5pc) and Adelaide (-0.2pc) continued to fall

Five of the eight capital cities had price rises, but Darwin (-1.2pc), Perth (-0.5pc) and Adelaide (-0.2pc) continued to fall CoreLogic's head of research Tim Lawless said the price rises in Sydney and Melbourne signal the end of the correction in those two cities

CoreLogic's monthly home value index showed a 0.8 per cent rise in dwelling values nationally, while Sydney's gain was twice that size.

Melbourne's 1.4 per cent monthly increase also powered the overall result, while Australia's two biggest housing markets also had the biggest quarterly increases, just below 2 per cent.

No other capitals came close, with Canberra (+0.8 per cent), Hobart (+0.5 per cent) and Brisbane (+0.2 per cent) the other cities posting gains, while Darwin (-1.2 per cent), Perth ((-0.5 per cent) and Adelaide (-0.2 per cent) continued their declines.

Regional markets outside the capitals also lagged, with prices falling an average of 0.1 per cent.

'Step change upwards'

Property prices had risen modestly for the previous two months of winter in Sydney and Melbourne, but CoreLogic's head of research Tim Lawless said the August result was at another level.

"The August figures really have taken quite a step change upwards, which is much is a much stronger rate of growth than what we would have expected," he told ABC News.

"It does look like a growth trajectory is very much on the cards."

However, Mr Lawless said that the rate of price growth over coming months would depend on any policy responses from the Reserve Bank and bank regulator APRA if they become concerned that household debt begins increasing again from record levels.

Mr Lawless said the two biggest cities would be most vulnerable to any renewed mortgage lending crackdown, given that the ratio of house prices to household income are still around 8.5 in Sydney and 7.5 in Melbourne.

"Affordability constraints will probably continue to worsen from here if we do see housing prices continuing to rise, particularly against a backdrop of very soft wages growth," he said.

"Particularly if we do start to see lenders becoming more focused on factors such as minimising exposure to high debt-to-income ratios, you'd have to expect that would impact on the very expensive markets, like Sydney and Melbourne, more so than the more affordable markets."

Spring selling season will test the market: Lawless

Mr Lawless said another key factor likely to constrain further price gains in the big capitals is the extra stock that generally comes onto the market at this time of year.

"As we move into spring, we do expect there will be more stock flowing onto the market," he said.

"We haven't seen many properties entering the marketplace over the past few years, my suspicion is that as conditions improve and we see vendor confidence improving we probably will see quite a surge of properties coming on the market."

Mr Lawless said he is not sure that there will be the extra buyer demand to match an increase number of sellers.

"Credit is still relatively tight, even though it has loosened up a little bit that suggests we may not see buyer demand rising in line with supply levels," he added.

AMP Capital chief economist Shane Oliver agrees that it is likely this price rebound will be limited to a rise of about 5 per cent in Sydney and Melbourne over the next year or so.

"Compared to past recovery cycles, household debt to income ratios are much higher, bank lending standards are much tighter such that a return to rapid growth in interest only and investor loans is most unlikely," he wrote in response to the CoreLogic data.

"The supply of units has surged, with more to come, and this has already pushed up Sydney's rental vacancy rate well above normal levels, and unemployment is likely to drift up as overall economic growth remains weak."

While prospective first home buyers in the two big cities will be lamenting the return to price growth, Mr Lawless said at least they are not being faced with large rent increases — in Sydney rents are generally falling, and not rising by more than 3 per cent elsewhere.

"We're seeing an unprecedented surge in investment grade apartment stock," he said.

"I think that's one of the reasons we're seeing some downwards pressure on rents, particularly in Sydney.

"But also, as we do see the fact that wages are hardly moving, it probably does suggest that renters are approaching a ceiling in what they can afford to pay as well."