The housing bubble continues to inflate in earnest, as the last major weekend of the auction season delivered a spate of booming prices. Almost $1 billion worth of residential property changed hands on Saturday in Melbourne alone. While property bulls continue to blame a shortage of supply for the price rises, some of the recent increases belay any sort of "supply based" explanation. The Sunday Age reported yesterday that a one-bedroom property in Malvern East sold for $374,000 yesterday. It sold for $221,000 one year earlier, and the vendors spent $30,000 improving the property. In one year, the price effectively rose by 50%. Another Melbourne bayside property was reported as selling for $600,000 -- an increase of 27% in 18 months. The usual property spruikers buoyed by the results and were as usual, liberally quoted by grateful media outlets. Real Estate Institute of Victoria boss Enzo Raimondo told the Financial Review that "demand for residential property is proving to be very strong … this demand is being driven by a couple of factors -- a healthy economy, high confidence levels and a population that is growing by 1700 per week." Fellow bull, property adviser Monique Wakelin was equally ebullient, telling The Age that:
If a global stockmarket crash and worldwide credit market freeze only dents Melbourne property prices by 3.8 per cent, as it did in 2008-09, it's hard to think of any other scenario which would break house prices … Continued 25-basis point rate rises in 2010 may restrain over-exuberant price growth, but they won't kill the market.
BIS Shrapnel, which masquerades as an expert property research house, continued the theme with its chief economist, Frank Gelber, telling the Sunday Age:
Every time the market wanted to break out, something stopped it … interest rate rises, the financial crisis -- prices started to rise and then they were stopped again …
Now there's nothing to stop it. The trouble with keeping a lid on a pressure cooker is that when it comes out it comes out really strongly.

What property bulls appear to forget (apart from ignoring the inconvenient truth that supply problems are actually not backed by data is that even after the recent rises, interest rates remain at historically low levels. Rismark boss Chris Joye produced this fascinating graph for his Business Spectator blog last week indicating the link between interest rates, house prices and median incomes.