Home values in the nation's biggest city slipped 5pc in the past year, enabling Melbourne, Canberra and Darwin to start bridging the gap Real estate agents are talking it up and investors and vendors are hoping it is true, but there is still no guarantee that after a flat 2005 the Australian property market will bounce back this year. Industry boosters have seized on recent figures showing strong auction clearance rates in Sydney, Melbourne and Adelaide. But this has also been matched with anecdotal stories about properties where vendors - desperate after weeks without concrete offers - have dropped their prices. Amid the hysteria and hype, there are some hard and quite revealing figures about the state of the Australian market. The Sydney market, for example, has historically been the country's leader but that may no longer be the case as the other cities catch up. Sydney house prices fell by 5.1 per cent last year and unit prices by 5.2 per cent, according to industry research house Australian Property Monitors. In most years of the previous decade Sydney house prices rose about 10 per cent a year. Because of this decline, other cities such as Melbourne, Canberra and even Darwin are starting to bridge the gap with Sydney. The median house price in Sydney is now A$518,000 ($2.9 million), still by far the highest in the country. Canberra, the nation's capital, has the second-highest median house price at A$409,000, after prices rose 2.3 per cent last year. Prices in Darwin rose more than every other Australian city last year, surging nearly 21 per cent to A$344,000. According to the Reserve Bank of Australia, the fall in Sydney house prices in the past two years - a period in which prices have been steady or rising in other cities - has gone some way to redress the inequalities of the market. 'The price falls that have occurred in Sydney, together with the stable of increasing prices in other capitals, have brought price relativities between Sydney and the other capitals back to the pre-boom levels of the early to mid-1990s,' the bank said in its recent quarterly statement on monetary policy. Despite Sydney's fall, buying a house there still remains out of the grasp of most Australians. Research from the Housing Industry Association (HIA) shows that the Sydney property market has become so expensive that some young couples will be unable to pay off a mortgage in their lifetimes. According to the HIA, Sydney house prices are now nine times the average annual household income, even accounting for two years of falls. HIA figures show that minimum monthly mortgage payments in Sydney account for 37 per cent of household income, contrasting with only 29 per cent in Melbourne, Brisbane and Canberra, 25 per cent in Perth and 22 per cent in Adelaide. The discrepancy could be another drag on the Sydney market this year, simply due to a dearth of buyers who are able to afford the prices. While some market watchers are predicting a firm market in other cities, Sydney could still be problematic. 'For Sydney, I suspect we are not quite out of the woods yet,' said APM research director Louis Christopher. 'The 0.1 per cent rise in the December quarter was a modest one and it has possibly been affected by seasonality.' Another blip on the horizon is the interest rate question. The Reserve Bank has signalled that the next move in interest rates is likely to be up from the official 5.5 per cent cash rate at present, and any move has the potential to cause another real estate stampede in a market such as Sydney, which is full of highly leveraged investors. It all adds up to a headache for Australian real estate investors, unless they happen to be buyers who do not have to sell their property first and can afford to take the time to wait and see what happens with interest rates and the market.