California's major cities recorded a surge in luxury house prices during the third quarter, a survey by the wealth manager First Republic Bank has revealed.

California's major cities recorded a surge in luxury house prices during the third quarter, a survey by the wealth manager First Republic Bank has revealed.

"Price increases continue to be driven by low interest rates, limited inventory and a good economy. Luxury properties are routinely selling for over the asking price and often with multiple offers," said Katherine August-deWilde, president of First Republic Bank.

San Francisco made the biggest gains, recording a 14.3 per cent increase from the third quarter of 2013. The average luxury home in the region is at an all-time high of $3.44 million.

"The market throughout San Francisco was strong through the third quarter," said Malcolm Kaufman of estate agent Alain Pinel in San Francisco. "I see no tapering for the balance of the year. There are just not enough single-family homes for the expanding population. Developers cannot build fast enough to meet demand."

Los Angeles was not far behind with values jumping 13 per cent from the third quarter a year ago, meaning the average luxury home now stands at $2.61 million.

"The third quarter was strong across most markets from West LA to Malibu. Inventory is low and buyers are active in the luxury market. In Brentwood, Pacific Palisades and Malibu, prices are very strong and buyer interest is greatest for homes selling for $2 million to $5 million," said Herb Leary at estate agent Leary States.

Meanwhile San Diego saw prices up 4.8 per cent year-over-year meaning the average luxury home now stands at $1.98 million.

First Republic Bank produces its prestige home index every quarter.