Sydney’s property market has soared to new heights, with the median house price now $1.18 million, data released on Thursday shows.

But surprisingly, unit prices grew at twice the pace over the June quarter, suggesting supply is still yet to catch up with demand.

Sydney apartment prices jumped 3.2 per cent over the past three months to $757,991, while houses grew a more modest 1.6 per cent to $1,178,417, the latest Domain State of the Market Report shows.

The strong apartment market growth came as a shock to AMP Capital chief economist Shane Oliver, who had anticipated a sharp slowdown on the back of a record building boom.

“We’ve got units popping up like mushrooms, I expected this would be more of a dampener on prices. It’s likely at some point in time prices will ease for units,” Dr Oliver said.

We’ve got units popping up like mushrooms, I expected this would be more of a dampener on prices.Shane Oliver, AMP Capital

Despite the strength of the growth, he said it was a “clear slowing” on the back of rate hikes targeted at investors by the banking regulator APRA.

“It will slow further because we have yet to see the full impact of rate hikes, which continued on through the quarter,” he said.

Compass Economics chief economist Hans Kunnen said it was likely home buyers were opting for apartments instead of houses due to an “affordability barrier”.

“People just can’t afford to buy a house … supply has been strong but demand is clearly stronger,” Mr Kunnen said.

He expects this trend of stronger apartment growth could continue for the next six to nine months.

“There remain these flows of people and flows of money that keep the housing market strong but with slow wages growth and interest rate scares … there’s clearly a slowing.”

Despite the slowing, it is now $130,000 more expensive to buy a house than a year ago, with prices up 12.7 per cent in the past 12 months. Units have jumped 10.5 per cent over the same period.

But price growth of 10 per cent plus a year might be a phenomenon of the past, Domain Group chief economist Andrew Wilson said.

“Without further cuts to interest rates, the days of double-digit growth are over,” Dr Wilson said, instead pointing to prices growing “slowly but steadily” in the next few years.

Already, this rate of growth is well below late-2016 growth rates of 4 per cent a quarter.

“Despite recent record levels of apartment construction, Sydney unit prices are continuing to rise, now at a faster rate than houses,” Dr Wilson said.

“Unit prices recorded a sixth consecutive quarterly increase and the highest growth rate in two years – since the June quarter 2015.”

BIS Oxford Economics senior manager residential Angie Zigomanis also said unit price growth was “higher than expected” on the back of would-be house buyers opting for apartments.

“The indicators are still solid for Sydney, it is still under-supplied and we don’t see the market tipping into over-supply despite the building [boom].”

Recent state government forecasts estimate an additional 185,000 homes will be built in Sydney by 2021, with the majority of homes in Parramatta, the City of Sydney, Blacktown and Canterbury-Bankstown.

He warned there could be “pockets” of oversupply” around Parramatta and Macquarie Park, but it remained to be seen whether strong employment drivers and transport would keep them afloat.