Erskineville in Sydney's inner west has been identified as the city's top hot spot to watch.
Yesterday, McGrath Estate Agents chief executive John McGrath identified the Sydney metro areas that would continue to perform strongly over the coming quarter.
Amongst his top suburb picks were Redfern, Rozelle, Taren Point and Vaucluse.
According to Mr McGrath, all of these suburbs will perform really well in terms of housing, while Bronte, Little Bay, Milsons Point, Ryde and St Peters are the suburbs to watch for apartments.
Mr McGrath said he was confident that buyers would return to the market in the early stages of 2012, helping these suburbs to reach their true price potential.
"Australian buyers don't need to see a lot of price growth to regain confidence, they just want to know that home values have stabilised. A lot of people are sitting there with cash in the bank waiting for the signal that the market has leveled and now's the time to buy," he said.
"The underlying demand is there, people are just waiting for the bell to ring and I think there's a good chance that will happen in the first half of 2012."
"While we continue to wait for more positive signals, green shoots of growth and new demand continue to emerge. The market under $1 million is strong due to first home buyer and investor activity."