Housing is hotting up, but Melbourne will stay the cooler city

MELBOURNE house prices are on fire - $1 billion worth of auctions every weekend. And now the experts tell us values in the city could outstrip Sydney. Certainly there have been some eye-catching numbers: Melbourne's median price at $494,000 would certainly seem to be challenging Sydney's $545,000.

And though it seems like Sydney - where a car space in North Bondi recently went for $240,000 - has long been dearer than Melbourne, the gap only opened up in the early 1980s.

According to property research group Residex, as late as 1979 Melbourne was dearer, with a median house price of $46,000 against Sydney's $42,000. But around 1980 a combination of factors started to put Sydney way ahead of Melbourne - multinationals preferred Sydney, most of the ASX big listed companies centred there and the city's population began a climb to beyond four million.

Over the past decade, Sydney experienced regular lunges in prices that Melbourne simply could not match. The price gap by 2004 was huge - Melbourne had barely cleared a median of $300,000 and Sydney had broken $500,000.

Then something happened that's as regular as a heartbeat - the numbers swung back in favour of Melbourne. This time the rebalance was more dramatic because Sydney had overshot.

Just now Melbourne is having a strong run - immigration, pent-up demand, a stable state government and inevitable momentum from positive headlines push prices up. Meanwhile Sydney seems relatively flat with some weakening of population growth, a post-Olympic hangover (the full effect came after 2004 despite the games occurring four years earlier) and a series of ineffective NSW state governments.

It's not surprising to hear Residex managing director John Edwards suggest he would ''not be surprised'' to see Melbourne prices pass Sydney at some point in the next decade.

Maybe it could happen - briefly - a short-term technicality. But to jump beyond that and suggest that Melbourne house prices will soon surge to the point that Melbourne will become permanently more expensive than Sydney city for houses is nonsense.

It won't happen. Here's why: Melbourne home prices are coming to a peak. Scott Keck of Charter Keck Cramer is a valuer, not a real estate agent … a very important distinction. He says: "Prices are strong, but Melbourne certainly won't eclipse Sydney; there is just too much free land in Melbourne, it's flat at the city fringe, the residential blocks can go on forever. I believe we'll see the city prices cool soon.

''In contrast, in Sydney you have the Blue Mountains, state forests up against the city … it's a totally different market.

What's more, all the indications are that it's Sydney that is going to rebalance, very soon.

NSW is at the epicentre of the nation's housing shortage - a shortage that even the Reserve Bank is publicly worried about following comments by Deputy Governor Philip Lowe a few days ago.