Melbourne's red hot property market continued to steam ahead with median house price surging 15% to $540,500 in the September quarter according to the latest data released by the Real Estate Institute of Victoria (REIV).

The phenomenal increase was the largest jump recorded since REIV started tracking quarterly data.

REIV CEO Enzo Raimondo said the combination of a better than expected economic conditions and strong population growth has resulted in an unprecedented level of pressure on housing costs in Melbourne.

"The city's population is increasing by around 1,700 people per week and unfortunately housing construction has not responded as quickly as would be necessary to ease the pressure in the market.

"The level of confidence in the market is apparent from the number of homes being bought and sold; the REIV has recorded an increase of 22% since the 2008 December quarter.

"This is highlighted by the strong growth in the middle of the market. The largest increases in median prices have occurred for homes priced between $500,000 and $900,000," he said.

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