Australia's robust economy will mean a rise in house prices for the next few years, say some experts.

As interest rates rise and unemployment numbers fall, the big risk could be housing affordability. "[T]here's a whole set of factors that have acted to reduce housing affordability from a cash flow perspective," says Commonwealth Bank chief economist Michael Blythe. However, he adds, the country is far from the state it was in in 2003, when when debt servicing ratios were high while the cash rate hovered at about 5%.

"Affordability will deteriorate as we go to a higher interest rate environment by 2013," says Rob Mellor, managing director of research firm BIS Shrapnel. "In terms of mortgage repayments as a percentage of income, affordability will be a critical issue over a three-year period … and we expect interest rates to rise in 2011/12 to around 8.3% or so by June 2012 and more like 9.1% by June 2013." 

Some economists believe that residential property prices in big cities such as Perth, Adelaide and Sydney could rise by as much as 20% in the next three years. However, National Australia Bank forecasts more modest growth  --  5.0% for Canberra, 3.3% for Adelaide, 2.7% in Sydney, 1.6% for Perth, and 1.3% for Melbourne, while the Brisbane market should remain flat -- for a national average growth of 1.5%.

Properties priced at less than A$500,000 are expected to have the biggest gains in prices.

Source: Overseas Property Professional