Property values in Melbourne staged a stunning performance surging by 6.1% to $443,811 since the beginning of the year, a new report revealed.

The RP Data Rismark International Home Value Index also found that property values in all capital cities rose over the first five months of the year. Sydney values jumped by 5.2% to $529,785, Darwin rose by 5.5% to $444,846 while Brisbane gained 2.6% to $432,811. Perth continued to lag with values increasing only by 0.5% to $468,052 during the same period.
 
Tim Lawless, national research director with RP Data said the latest result "herald a national market recovery."
 
"It's important to note that it has taken just 15 months for values to recover from the February 2008 peak. I believe these results are encouraging, especially when we take a closer look at the other Western markets around the world where prices are mostly in decline," he said.
 
A potent cocktail of low interest rates, tight rental markets and generous grants to first homebuyers triggered the record-breaking run in property prices according to CommSec.

"It's a simple case of supply and demand," said Craig James, chief economist with CommSec. "Demand for homes is being spurred by improved affordability, the fastest population growth in 40 years and weak returns on other assets. At the same time, Australia continues to experience an undersupply of homes through lack of building over recent years. Demand for home exceeds supply, pushing prices higher."

James added that the lift in home prices should encourage greater activity from repeat homebuyers and investors, insuring that there won't be a slump in activity when the expanded homebuyers grant is wound down over the second half of the year.

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