"Rumours of the death of the Australian housing market are widely exaggerated,” says Craig James, Chief Economist, CommSec.

Capital city home prices rose by 1.6% in the month of May to be an impressive 10.0% higher for the year, according to The CoreLogic RP Data Home Value Index.

Home prices rose in seven of the eight capital cities in during the month. Prices only fell in Perth, which saw a 2.7% fall.

“After sluggish growth in home prices in February and March, prices posted the best back-to-back gains in 10 months over April and May,” said James.

But James said he still expects prices to soften in the year ahead.

“More homes are being built in Australia than ever before and building approvals are at record highs. So prices should soften over 2016/17 as more new homes are completed,” he said.

James said that with prices rising so strongly in Sydney and Melbourne, investors are looking to other capital cities, which is boosting price growth there.

“The higher home prices in Sydney and Melbourne are causing more owner-occupiers and investors to consider other markets, lifting prices in other capital cities,” he said.

“Hobart home prices are up by 6.1% over the year, just shy of the fastest annual rate in almost six years,” noted James.

Prices rose strongly in Melbourne (+13.9%) and Sydney (+13.1%), but were also up in Brisbane (+7.1%), Hobart (+6.1%), Canberra (+5.7%) and Adelaide (+3.9%). Prices fell over the year in Darwin (-3.5%) and Perth (-4.2%).

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