A year after hitting record auction clearance highs, Sydney’s property market has returned to boom-time conditions.

Over the weekend, Sydney saw its highest weekend clearance rate since July 2015, according to Domain. The 82.2% result was even higher than the 79.7% achieved on the same weekend last year.

According to Domain, relatively low auction numbers are leading to higher clearance rates. 471 properties were listed for auction on Saturday compared to 727 on the same weekend last year.

Sydney auction clearance rates Aug 2016

Source: Domain Group

The low levels of supply are leading to fierce competition in most areas says Domain, although that might ease as auction numbers gradually rise over coming weekends into spring.

Illustrating the fierce competition is a Sydney home at Hunters Hill that sold for $3.85 million just two years ago. The hose sold for $5.15 million on Saturday. According to Fairfax Media, the volume of properties on the market in the area have dropped by 29% in the past 12 months. The lack of supply saw the house sell for $750,000 above its reserve price.

Melbourne is also booming, recording the second-highest level of auction clearance rates so far this year and clearance rates rising for three consecutive weekends.

Australian Bureau of Statistics (ABS) lending data for June released last week also appears to show that investors are returning to the property market, after a crash in lending to investors over the past year – see Investment Housing chart below.

ABS investor lending growth chart

Source: Australian Bureau of Statistics

The big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) all imposed severe restrictions on lending to foreign investors over fears of fraud and money laundering which crimped the market. Lenders also imposed higher interest rates for investors, tighter restrictions on loan-to-valuation ratios (LVRs) and total amount lent.

But cuts to mortgage rates, the all-time record low RBA cash rate and expectations of further low rates ahead could deliver a significant kick-along for Australia’s property market.

Foolish takeaway

Evidence suggests Australian capital city property prices are rising, given the weak supply and ongoing strong demand from buyers.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.