SYDNEY - Tumbling Australian home prices may have found solid ground amid the worst property downturn in a generation as the real estate industry experiences a revival in auction demand, data showed.

Australia's central bank has been closely watching housing market weakness as two years of price declines have eroded wealth, undermining consumer confidence and spending power.

The country's housing stock is worth around A$6.8 trillion ($4.79 trillion), showed estimates from the Australian Bureau of Statistics, or almost four times annual gross domestic product. 

Auctions are a bellwether of demand and real estate industry participants hope buyer interest has returned, with clearance rates rising across state capital cities.

Latest data from property consultant CoreLogic for the week ended July 13 showed increasing numbers of buyers are purchasing auctioned properties compared with the same time last year.

Of 261 auction results reported in Sydney for the week, 190 found buyers giving a clearance rate of 72.8% - up from the 46.9% reported in the same week a year earlier.

In Melbourne, the clearance rate reached 70.6%, an increase on the 56.2% of last year.

Across all the capital cities, the clearance rate reached 65.4% compared with 52.0% in the same period last year.

Economist Martin North, principal of research firm Digital Finance Analytics, sounded a note of caution on the auction results which are on lower volumes and are self-reported by real-estate agents.

"A massive spruiking operation is going on at the moment trying to talk the market up," he told Reuters on Sunday, referring to salespeople's showmanship.

The results suggest buyers are reacting positively to cuts in mortgage interest rates after the Reserve Bank of Australia (RBA) lowered its cash rate to a record 1.25% last month, and indicated the possibility of further easing.

Digital Finance Analytics' North said borrowers must still repay the capital regardless of lower interest costs, and that high levels of debt relative to income was becoming a problem. "People are going into retirement still with a mortgage," he said. "It's building risk into the system."

North also said an oversupply of apartments, concerns over their poor build quality and their wide use of recently banned flammable aluminium cladding is likely to impact the market.

(Reporting by Alison Bevege; Editing by Christopher Cushing) ((Alison.Bevege@thomsonreuters.com +61 2 9321 8191))