MELBOURNE real estate agents claim the best auction week since the end of the 2007 property boom proves confidence in the economy has returned.

Of the 527 reported auctions in the week to yesterday, 85 per cent were sold, the highest clearance rate in 18 months.

Real Estate Institute of Victoria president Adrian Jones said a shortfall in the number of houses offered for sale had resulted in competition between multiple bidders at recent auctions.

Agents are hoping the amount of buyer interest will entice more property owners to put their houses on the market.

That is despite a 10 per cent decline in Melbourne's median house price during 2008 and a further 3 per cent decline in the three months to March.

"For the best part of 10 to 12 weeks we've had consistently improving clearance rates, which means it's not an aberration, it's an evolving trend," Mr Jones said.

"It shows there is a shortage of stock and buyers have gained confidence … a lot of buyers are coming to the conclusion that the market has passed the bottom and it's time to make a move."

He predicted price falls would soon stabilise and begin to improve by the end of the year.

Buyers advocate Mal James said prices had gone up 10 per cent in the million-dollar-plus market this year.

However, it was too early to say whether it was a genuine rebound. The real test would come in spring if there was an increase in stock.

"If the market does sustain itself at this level then most property watchers would say we have turned the corner."

Economic consultants BIS Shrapnel has forecast that the average Melbourne house is likely to cost more than $500,000 by 2012.

In a study to be released today, senior project manager Angie Zigomanis predicts a broad, deep recovery in housing demand, as home owners upgrade to better homes and investors come back to buy.

BIS Shrapnel estimates that the median house price in Melbourne is now about $425,000, after a fall of 10 per cent last year and another 3 per cent in the March quarter.

But it says the tide has turned, although prices will rise only gradually at first.

With economic activity picking up while the Reserve Bank holds interest rates down, it predicts house prices will start climbing rapidly from the second half of 2010, rising 19 per cent by 2012, to a median price of $507,000.

The pace of price rises would be equally rapid in Sydney and Adelaide but slower in former boom areas such as Perth, Brisbane and Queensland's coastal areas.

Mr Zigomanis said the expected price rises would gradually bring on the investment needed to clear the housing shortage. "Housing construction will be the primary driver for Australia's economic recovery in 2010-11 and 2011-12," he said.