The latest CoreLogic Home Value Index revealed that property prices continue to rise in half of Australia's capital cities over July. Dwelling values surged in Melbourne, Sydney, Adelaide, and Hobart, while Brisbane, Perth, and Darwin declined over the quarter by as much as seven per cent.

"Sydney remains pretty strong and for a couple of months on an annual basis, Melbourne recorded stronger results than Sydney, but Sydney is now stronger again," said RP Data's senior research analyst Cameron Kusher. "It is holding up much better than Melbourne and Brisbane."

The two biggest factors in Sydney's comeback are its strong auction and apartment markets. Apartment prices in the city were up three per cent over the quarter, compared to Melbourne units that only increased 1.4 per cent.

"It comes back to affordability," Kusher said. "Units in Sydney are expensive but $210,000 cheaper than a house, so for a lot of people it's the only viable alternative. In Melbourne, the gap isn't as large as prices are already lower."

However, there are signs that the property price growth in these cities is slowing down. It now takes two weeks longer for Sydney properties to be sold in the market. In fact, much of the strength in these capital cities are due to lack of stock, resulting in stronger auction clearance rates. Kusher dubbed the increased property supply in spring as their "big test."

According to Domain Group chief economist Andrew Wilson, the Melbourne auction market increased from 67.7 per cent in June to 71.7 per cent in July. Sydney's auction clearance rates also jumped by 3.4 per cent to 72.6 per cent.