After strong gains earlier this year, house prices in Sydney and Melbourne fell sharply in May.

It created a debate about whether that weakness was due to seasonality or the start of a more pronounced slowdown, coming in response to tighter macroprudential restrictions on Australian housing investors announced in late March.

Well, it looks like we now know the answer with prices in Sydney and Melbourne rebounding strongly in recent weeks.

Seasonality is now looking like the culprit, with prices in both cities jumping 1% and 0.8% last week. As a consequence of the lower base from the declines reported in May, that’s seen prices rebound by 1.7% and 1.9% respectively over the past four weeks.

That’s not unusual, fitting the pattern in prior years.

As a consequence of the recent rebound, prices in Sydney have now risen 5.4% this year, slightly outpacing Melbourne, which have risen by 4.8%.

And while auction clearance rates have fallen in both of these centres since the beginning of the year, as this excellent chart from ANZ points out, clearance rates of around 70% in Sydney — where they currently sit — has historically led to price growth of around 10% per annum.

While it’s from October last year, it still shows the relationship between prices and clearance rates and suggests that in order for price growth in Sydney to slow by any substantial degree, it usually requires clearance rates to fall to levels well below where they currently sit.

Should they remain around current levels it points to a price slowdown compared to last year, rather than a slump.

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