Capital city house prices continue to rise, boosted by the very strong Sydney housing market.

Prices rose 1.8 per cent in the three months to June, official figures show, better than the one per cent rise expected by economists.

In the year to June, the Australian Bureau of Statistics’ index of house prices rose 10.1 per cent, the third month in a row the annual rate was above 10 per cent.

• Click on the owl for all capital city house prices 

Leading the charge was Sydney, where prices rose 15.6 per cent in the year to June.

The next best performer was Melbourne with a 9.3 per cent gain.

We think that prices will moderate a little bit further as activity cools, particularly in Sydney where price growth remains very strong at levels that won’t be sustainable.

JP Morgan economist Tom Kennedy said it was too early to say if surging house prices might spark an interest rate rise by the Reserve Bank of Australia.

“At this stage we think the RBA is pretty comfortable with the housing sector,” he said.

“We don’t think that this is enough to get them over the line but certainly it would be something on their radar and they would be monitoring it quite closely.”

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However, national house price growth was being inflated by the outsized gain in Sydney, Mr Kennedy said.

“The details suggest that this strength is landing in one property sector,” he said.

“We think that prices will moderate a little bit further as activity cools, particularly in Sydney where price growth remains very strong at levels that won’t be sustainable.”

Commonwealth Bank senior economist Michael Workman said the rapid pace of house price increases might be a concern for the central bank.

“While rising asset prices are positive for household sentiment for households that own a dwelling, increases in property prices pose affordability issues and increase household debt,” he said.

“Dwelling price growth momentum is likely to ease over the near term as the housing supply increases, given the pick up in dwelling commencements, and rental yields take a hit given the rise in dwelling prices.”

– AAP