Property prices in Australia's major regional areas are still surging, raising questions about how long the cycle can last.

It's seen the divergence between price increases in capital city markets and regional areas get even larger.

It comes as Commonwealth Bank economist Gareth Aird says the Reserve Bank may start lifting the cash rate target as early as June.

Regional property prices still rising

CoreLogic's latest quarterly Regional Market Update shows what happened to regional property prices in the 12 months to January 2022.

The highest annual regional house price growth in the 12 months to January 2022 occurred in:

• The Southern Highlands and Shoalhaven region in New South Wales (38.2 per cent) 
• Queensland’s Gold Coast (36.3 per cent)
• Queensland's Sunshine Coast (35.4 per cent)

The fastest-selling region for houses was the Sunshine Coast, where the median time on market over the previous 12 months was 15 days.

Meanwhile, the top four regions with the largest change in sales volumes were all in Queensland:

• Townsville region
• Mackay/Isaac/Whitsunday region
• Wide Bay
• Central Queensland.

The highest annual regional unit value growth in the previous 12 months occurred in:

• Tasmania's Launceston and North East region (33.9 per cent)
• Queensland’s Sunshine Coast (31.1 per cent)

Growing divergence in price growth between regional and capital city markets

However, Eliza Owen from CoreLogic says there's an unusual dynamic afoot.

She said that, through the 2010s, in the dwelling price cycle, capital city prices seemed to lead regional markets by three-to-six months, on the way up and on the way down.

But, in the current cycle, capital city markets hit their peak growth rates in April 2021, and if that long-term property cycle relationship still held, regional dwelling market growth rates should have started slowing in late 2021.

But that hasn't happened.

"What was unique about the end of last year was that this pattern changed," Ms Owen said.

"Coming off the back of eased lockdown conditions across Sydney, Melbourne and the ACT, regional price growth instead accelerated toward the end of the year, while capital city dwelling price growth continued to slow.

"This created an unusual divergence between the two markets, where price growth accelerated to 6.3 per cent in regional Australia over the three months to January," she said.

The new dynamic has seen median dwelling prices across Australia's combined regional markets jump 26.1 per cent over the previous 12 months.

Meanwhile, the combined growth rate of capital city dwelling prices was 21.3 per cent for the same period. 

Ms Owen said interstate migration trends may have acted as a tailwind for the most-popular lifestyle regions at the end of 2021, even as affordability challenges emerged as fixed rates started to move higher.

Over the 12 months to January 2022, 24 regions recorded double-digit annual growth for houses, and 18 regions saw gains in excess of 20 per cent.

However, Ms Owen said, it was hard to imagine this momentum continuing for most regional markets this year.

She said the affordability advantage in regional markets would be hit when the availability of credit diminished.

"Key drivers for performance in the regions will come down to higher interest rates and affordability constraints — the same headwinds capital city markets are facing," she said.

Interest rate hikes coming, mortgage holders warned

The unusual divergence between city and regional house price trends comes as CBA's head of Australian economics, Gareth Aird, says the Reserve Bank may start lifting its cash rate target as early as June. 

Mr Aird is forecasting the cash rate target, which is currently 0.1 per cent, will be increased a few times this year.

It could end 2022 at 1 per cent, he said.

"We estimate there are [more than] one million home borrowers who have never experienced an increase in mortgage rates," he said on Tuesday. 

"The RBA will need to assess the impact of rate hikes on the economy, particularly the household sector and the housing market, as they move through the tightening cycle.

"This means the central bank is likely to be patient, and a gradual and shallow rate hike trajectory is our base case."

Select local government areas top lists

According to the CoreLogic report, when you drill below the large regional areas in Australia to look at property prices in smaller local government areas (LGAs), there has been exceptionally strong price growth in smaller parts of the country in the previous 12 months.

It said, for example, house prices in the Kiama LGA — which is 90 kilometres south of Sydney — recorded the largest increase of any LGA in the previous 12 months, at 43.9 per cent, taking its median house value to $1,633,086. 

Byron Shire on the NSW North Coast has the highest median house value of any regional LGA, at $1,838,286,(up 30.2 per cent in the previous 12 months.