October is shaping up as a key test for the housing market.

October is shaping up as a key test for the housing market. Photo: Justin McManus

IN THE first real sign that Melbourne's residential market could be on the road to recovery, the auction clearance rate jumped to 66 per cent yesterday, the best result this year.

While no one is officially calling an end to the state's two-year property slump, there are clear signs that buyers are returning to the market.

More auctions are attracting multiple bidders and Melbourne's auction clearance rate is tracking about 10 percentage points higher than clearance rates at this time last year.

Yesterday's strong results emerged despite a large number of properties on offer, with 540 scheduled auctions.

This month is shaping up as a key test for the housing market, with more than 3000 properties to go under the hammer. Real Estate Institute of Victoria figures put Melbourne's auction clearance rate for September at 60 per cent, while Australian Property Monitors puts the rate at 61 per cent.

A year ago the clearance rate was 50 per cent.

''There is a bit of light between where we were last year at this time and where we are now that provides some cause for optimism,'' REIV spokesman Robert Larocca said.

Even though the big banks are electing to pass on to their customers only about 80 per cent of the 25 basis point interest rate cut announced last week by the Reserve Bank, the spate of rate cuts seen this year is boosting affordability and buyer confidence.

RP Data figures, released last week, show Melbourne property prices have increased by 4 per cent since May.

Research director Tim Lawless said the improving market conditions were mostly due to low interest rates.

''It's no coincidence that housing market conditions bottomed out at the end of May, after the Reserve Bank cut the official cash rate by 50 basis points,'' he said.