Housing market's best year in four years Australian home prices jumped almost 10 per cent in 2013 and the boom isn't expected to let up any time soon. Sydney's property market was the strongest, helping to deliver the strongest year of national capital city prices since 2009, according to the RP Data-Rismark December Home Value Index. Low interest rates drove the demand for housing last year and the trend is likely to continue in 2014, with benefits flowing through to the rest of the economy, St George chief economist Besa Deda said. House price growth would continue to drive recovery in residential construction, one of the "important ingredients" needed to support the economy as the mining investment boom winds down, Ms Deda said. "Low interest rates, firm population growth and housing shortages among some capital cities suggest house prices will record further gains this year," Ms Deda said. We expect growth nationally of 5-8 per cent this calendar year and these price gains should in turn help underpin household wealth and continue to help foster improvements in consumer confidence. Home values rose by 14.5 per cent in Sydney in 2013, pushing the city's median dwelling price to $655,250, the report said. Perth was the second best performer, with an annual growth rate of 9.9 per cent. Home prices in both cities are currently at record highs, up 10.9 per cent and 3.6 per cent, respectively, over prior peaks, the report said. Across the country, capital city home values rose by 9.8 per cent in 2013. Hobart had the weakest growth, with prices rising by just 2.2 per cent, taking the median dwelling price there to $330,000 - the most affordable of all the capital cities. RP Data senior research analyst Cameron Kusher said the gains of 2013 had followed two years of losses. "Despite the strongest annual value growth since 2009, the rate of growth was not that startling given the low interest rate environment and the previous successive years in which home values fell," Mr Kusher said. Home values fell 3.8 per cent in 2011, and a further 0.4 per cent in 2012, Mr Kusher said. He said the main challenges for 2014 would likely be the impact of forecast unemployment growth, affordability constraints, and whether regulatory changes will be implemented to cool the near-record high levels of investor activity.