Melbourne’s strengthening residential property market will face a series of challenges in April and May.

Some real estate agents predict the current bounce in auction clearances, which has defied expectations, could evaporate if buyers baulk at paying excessive reserve prices.

Vendors in some suburbs could also be disappointed by relatively low levels of house price growth, despite a weekend clearance rate nudging 80 per cent over the past month.

At the start of the year analysts said macroeconomic factors – including a high jobless rate, Victoria’s declining manufacturing sector and record-low levels of wages growth – would curtail housing market growth.

But that hasn’t happened. Low interest rates, the setting of “fair” reserve prices by most vendors and high levels of migration to Melbourne have proved more critical in shaping the market than broader economic factors.

But how long reasonable reserves will remain a market constant is anyone’s guess.

Marshall White director John Bongiorno said high reserves were more likely to quell sales activity than external factors.

There were signs vendors were hiking up reserves, he said

“If vendors start to get ahead of themselves and get a little bit greedy, buyers will just shirk the prices,” Mr Bongiorno said.

But Jellis Craig director Craig Shearn said some high reserves were being met and exceeded at auctions.

“It is still important to set your reserve realistically but in a lot of cases in the past few weeks when a reserve has been seen as high, the market has taken care of it,” he said.

Auction clearance rates have moved up 10 percentage points to about 80 per cent since October. Historically, increases in the clearance rate lead to growth in property values.

Domain Group senior economist Andrew Wilson said the improved clearances were expected to lead to 8 per cent growth in Melbourne’s median house price this year, up from the 4 per cent growth rate originally forecast for Melbourne.

“There will be double-figure growth in the eastern suburbs,” he said.

However, Dr Wilson said there wouldn’t be a repeat of the 2009-10 boom, when Melbourne prices surged by 30 per cent. This was because the capacity for price growth was weak due to Victoria’s underperforming economy.

Listing numbers, which were soft at the start of the year, are also now pulling ahead of 2014’s auction bookings.

This will give buyers choice and up the pressure on sellers.

Yet a move by the Reserve Bank board, which meets on Tuesday, to cut interest rates again would certainly boost confidence levels.

Only 11 metropolitan auctions were held on Saturday. Listings will ramp up next weekend when 546 auctions are scheduled.

Posted by Chris Tolhurst – The Age on 4th April, 2015