Syd house prices grow fastest in 13 years

Sydney house prices grew at their fastest annual pace in nearly 13 years in July, highlighting the huge task ahead for Australia's bank regulator to rein in the boom that threatens to destabilize the country's already-fragile economy if it turns to bust. 

Sydney house prices jumped 5.4 per cent in the second quarter, to be 18.4 per cent higher from the same period a year earlier, said property research firm CoreLogic RP Data. 

The jump in the Sydney market comes as the Australian Prudential Regulation Authority has ramped up efforts to curb speculation on Sydney housing, with major banks responding by asking for bigger deposits on loans. 

Home prices have risen across most of Australia, particularly in Sydney where they have jumped about 40 per cent since 2012. 

New lending has been dominated by investor mortgages, which the central bank has warned is distorting the market, and last year prompted the banking regulator to call for investor lending growth to be limited to 10 per cent. 

The Reserve Bank of Australia said recently that while it does not rule out cutting interest rates below their current record low 2.0 per cent, it has acknowledged growing risk of financial instability if it does. 

Interest rates were cut in February and May as the Reserve Bank of Australia responded to slowing growth and a collapse in the prices of key commodities. 

Financial markets are still betting on a further cut as the economy remains weak over the next year as investment and employment growth fail to fire. 

House prices in Melbourne, Australia's second-largest city, also jumped by 4.9 per cent in July to be 11.5 per cent higher over the year, the data showed. 

Nationally, house prices were 2.8 per cent higher over the month and 11.1 per cent higher for the year. Outside of Sydney and Melbourne, the housing market is flat. 

Over the past twelve months, several cities have "entered a correction phase" with Darwin values falling the most, down by 5.3 per cent. Perth values also drifted lower over the year, down 0.3 per cent.