Essendon became Melbourne's most wanted suburb after racking up a staggering 22% growth in house values in the three months ending December 2007, according to new data from the Real Estate Institute of Victoria (REIV).

The median house value for the well-established suburb climbed to $865,500 from $709,000, buoyed by solid demand in the area. Suburbs in the west, northwest, middle and even outer areas are also performing well.

The median house value in Richmond rose by 21.5%, Glenroy by 18% and Frankston South by 15.4%. Even smaller towns further out of Melbourne are recording spectacular gains. Woodend, which is located 70km northwest of Melbourne and has a population of 5,374, notched up a stunning 23.4% increase in median house value to reach $432,000. The small coastal town of Rye also attracted buyers' attention, gaining 11.7% to reach a median value of $391,000.

Melbourne is showing no signs of slowing, with median house prices jumping by 12.8% to $485,000 - the single biggest gain in the history of the series.

"Growth in the prices people are willing to pay for a home is being driven by strong demand," says REIV CEO Enzo Raimondo. "The Victorian economy is going very well, which is leading to an increase in migration, confidence and what people are willing to pay."

However, Raimondo warned that while the strong run is not surprising, it is not sustainable in the medium or longer term.

Michael McNamara, general manager with Australian Property Monitor, agrees that the rapid rise in house values cannot be a maintained for much longer.
"The upwardly spiralling Melbourne house values represent a boom-time market in anyone's language," McNamara said. "Clearly, this explosion in property values is unsustainable - and, certainly, would-be homeowners are hoping so."

However, if Melbourne house values were to continue on that trajectory, McNamara said he believes Melbourne would topple Sydney as Australia's most expensive city within 12 months.