Home price growth has hit an 18-year high but analysts say the current rate of growth is unsustainable.
Capital city home values jumped 2.3 per cent in March after a flat result the previous month, according to the RP Data Rismark Home Value Index.
That marks the biggest monthly gain in more than 18 years, CommSec economist Savanth Sebastian said.
While the Reserve Bank has expressed concern over house prices, greater supply of new homes in 2014 would restrain further growth, Mr Sebastian said.
“The strength in property prices has been phenomenal,” he said.
“The last thing regulators and policymakers want to see is over-leveraged home buyers in an environment where rates have bottomed out and are likely to rise in time.
“While the discussion of a housing bubble will continue to dominate media headlines, it is likely that increases in land sales, building approvals and new home sales will result in a greater supply of homes over 2014, and, as a result of increased home supply, price gains will become more restrained later in the year.”
In the year to March, capital city home values were up 10.6 per cent, the index showed.
Sydney led the charge with values growing 15.6 per cent in the last 12 months.
Half of all capital cities – Sydney, Melbourne, Perth and Canberra – were now posting record high prices, RP Data research director Tim Lawless said.
Since last June, dwelling values were up by almost 13 per cent, which was an unsustainable rate of growth, he said.
“Over the long term, I don’t believe such a strong pace of growth can be sustained,” Mr Lawless said.
“We expect housing market conditions to cool down as the year progresses.
“If the pace of capital gains doesn’t slow, we may see higher interest rates realised much earlier than previously expected.”
Commonwealth Bank economist Gareth Aird said house price growth was showing no sign of slowing down.
“Strong population growth, record low interest rates and expectations of further house price appreciation are fuelling demand,” he said.
“Until supply starts to respond, upward pressure on prices will remain while interest rates stay low.”