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House prices rise as Sydney surge continues

Capital city house prices have continued rising, with the Sydney market still outperforming the rest of the country.

Figures from CoreLogic RP Data show the average capital city home price rose by a further 0.3 per cent in February, taking the annual increase to 8.3 per cent.

But the averages do not tell the full story.

Sydney led the gains with a rise of 1.4 per cent and was up a stellar 13.7 per cent over the past 12 months.

Melbourne was a distant second with an annual increase of 7.4 per cent following a marginal 0.2 per cent rise last month.

The once-booming Perth market felt the pinch of falling commodity values and a declining jobs market, with prices tumbling 2.2 per cent last month.

Perth prices rose just 0.6 per cent year-on-year - underperforming even Hobart, which saw growth of 0.7 per cent.

Despite that, Perth — with a median dwelling price of $510,000 — remained the fourth most expensive city in the country, equal with Canberra, so there was possibly more room to fall.

With predictions the Reserve Bank could cut the official interest rate below 2 per cent, with the next cut as early as tomorrow, many potential buyers will be wondering if there is any sign of a reprieve in sight.

But there was some evidence the RBA's rate cut to 2.25 per cent last month was not the petrol on an already inflamed market some predicted.

The average rate of capital gain across the country actually slowed during February, which RP Data's Tim Lawless said may come as a bit of a surprise.

"We might not see the lower interest rate environment stimulate the housing market as much as it has in the past," he said.

"Weaker jobs growth, higher unemployment, declining affordability, low rental yields and political uncertainty are all factors that could dent consumer confidence and provide some counter-balance to the rate cuts and quell any additional market exuberance."

However, RBA figures last week revealed credit growth hit a six-year high in January and was likely to continue to rise as historically low rates proved too hard to resist.

Investors were the driver, with credit to investors increasing by 10.1 per cent over the year compared to a rise of 5.7 per cent for owner-occupiers.

The CoreLogic RP Data report revealed good reason for this, at least in Sydney, with total return across the housing market approaching 20 per cent over the past 12 months.

With investor appetite almost matching owner-occupier demand in many cities, but particularly Sydney and Melbourne, only time will tell if those returns can be maintained.