Melbourne leads rebound in Australia home prices in January

Australian home prices rebounded in January, with Melbourne boasting especially strong growth, a counter to speculation that the market was at risk of crashing after a rapid run-up last year.

Figures from property consultant CoreLogic RP Data showed its index of home prices in the combined capital cities rose 0.9 per cent in January, compared with December when prices were flat.

Prices in Sydney increased 0.5 per cent after a soft end to last year, while Melbourne saw a jump of 2.5 per cent. Melbourne also overtook Sydney with annual growth of 11 per cent, compared with 10.5 per cent for the harbour city.

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Still, annual growth at the national level slowed to 7.4 per cent from 7.8 per cent in December and a cycle peak of 11.5 per cent.

The Reserve Bank of Australia holds its first policy meeting of the year on Tuesday and will likely be pleased that the market has cooled from the heights seen last year.

The central bank is widely expected to keep rates at 2 per cent for an eight month. It has been reluctant to ease any further in part for fear of stoking a debt-fuelled bubble in home prices.

Those concerns led regulators to tighten lending standards for property investment with the aim of keeping annual growth in loans at 10 per cent or less.

The major Australian banks also announced increases in mortgage rates both for investors and home owners, blaming higher regulatory costs.

Most of the strength in home prices has been concentrated in Sydney and Melbourne with other centres not nearly so hot. Brisbane managed annual prices growth of just 2.8 per cent, while Adelaide inched ahead by 1.1 per cent and Perth suffered a fall of 4.1 per cent.