Nila Sweeney

Melbourne's prime suburbs have continued to rack up the strongest demand and highest price increases, even as the city's more affordable areas start to feel the heat of recent rate rises.

The Real Estate Institute of Victoria (REIV) found that the five interest rate hikes, combined with strong growth in median house prices, resulted in a 28% drop of house sales under the $500,000 mark.

REIV CEO Enzo Raimondo said that in contrast to 2009, demand was no longer evenly spread across the city, with the biggest demand and highest price growth recorded in some of the city's most expensive suburbs.

"The largest increases in median prices were recorded in Malvern East, Brighton, Frankston South, Footscray West, Ascot Vale, Glen Iris, Kew, Camberwell, Surrey Hills and Blackburn - six of which have a median in excess of $1m," said Raimondo.

The median house price in Melbourne has fallen by 2% from $535,000 in the December quarter 2009 to the current $524,500. The median of units and apartments rose by 2% to $450,000, while Greater Geelong recorded an increase of 4.1% to $354,000.

While this is the strongest March quarter since 2003, Raimondo said it's clear there has been a shift in the market since the end of 2009.

"The residential auction market is strong but the same conditions are not apparent in the more affordable, private sale market. This shows that the market is showing signs of being impacted by the reductions in affordability," he said.

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