Melbourne could outstrip Sydney as the most expensive Australian city for housing within a year.
The average Melbourne house price soared by 25.2 per cent in 2007, compared with 4.8 per cent growth in Sydney, a survey by a property group found."If Melbourne house values were to continue on that trajectory they would topple Sydney as Australia's most expensive within 12 months," Australian Property Monitors general manager Michael McNamara said.
The APM housing price survey for 2007 found the average value of a house in Melbourne was $463,488 at the end of last year, up from $370,059 in 2006.
In Sydney, house values rose to $553,357, from $528,105.
"The upwardly spiralling Melbourne house values represent a boom-time market in anyone's language," Mr McNamara said.
"Whilst for some, buying Melbourne property has slipped further out of reach, it has been a year where investors in Melbourne property market have hardly been able to stop smiling."
But he said the explosive growth could prove unsustainable.
The survey also found house values rose by 20 per cent in Brisbane to $425,368 and 20 per cent in Adelaide to $400,659.
But the housing boom in Perth could be over, with values rising just 1.7 per cent to $508,776 - the weakest growth result in the survey.
House values rose by 14.6 per cent to $506,570 in Canberra, by 5.3 per cent to $443,917 in Darwin and by 11.3 per cent to $280,853 in Hobart.
Looking ahead to 2008, APM said the property market would be dominated by uncertainty, as volatile stock markets, rising interest rates, slower economic growth and higher petrol prices weighed on consumer confidence.
But Mr McNamara said the Sydney apartment market, which grew by just 1.7 per cent last year to an average $370,188, was undervalued and set to rise strongly.
"With Sydney apartments looking so cheap compared to other capitals, and assuming there is a transfer of cash from stocks to other asset classes, we have Sydney apartments as our number one pick for growth over the next few years," he said.
In Perth, Mr McNamara expects to see the start of a sustained period of weakness for house prices.
But Canberra housing continues to perform well and was set to overtake Perth as Australia's second most expensive city to buy property.
