Though national prices experienced a small dip in recent months, they increased by 0.4 per cent in February and now sit 3.94 per cent higher than the year before, according to new data from PropTrack.
This was driven by an improvement in market sentiment after the Reserve Bank cut interest rates for the first time in four years.
"As interest rates move lower, borrowing capacities increase and buyers' purchasing power increases and mortgage servicing costs move lower," REA Group senior economist Eleanor Creagh told AAP.
"That makes housing more affordable and stimulates demand."
A 25 basis point rate cut does not increase the average Australian's buying power by much, but the general improvement in sentiment plays a significant role as spending decisions are governed by how people feel.
For example, buyers that held off in 2024 due to high interest rates may re-enter the market, which fuels competition, Ms Creagh said.
Price growth was largely driven by increases in capital cities which increased by 0.45 per cent in February and 3.7 per cent over the year, but was tempered by a surge in choice and poor affordability.
Melbourne and Sydney led price increases, growing by 0.67 per cent and 0.5 per cent respectively in February.
Hobart was the only capital where prices fell, while Perth, Adelaide and Brisbane have experienced slow growth in recent months but strong performances over the past year with prices up by at least 10 per cent.
The regions, on the other hand, have recorded a 0.28 per cent increase during the month and a 4.54 per cent surge across the year.
With interest rates projected to fall in the coming months, house prices will likely continue to rise but Australia's already-stretched affordability is expected to temper gains.
The upcoming federal election could also affect market sentiment depending on housing policy announcements.
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