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Just had this article sent through to me thought it would be of interest to those members following the property market. Property prices won't experience huge losses over the next three years but interest rates will rise to almost 9.5 per cent by 2014 to force buyers back onto the sidelines, a new study says. The report by BIS Shrapnel, released today, dismisses forecasts of sharp falls in prices over the short to medium term and predicts prices to remain steady through the rest of 2011 "with some cities even showing moderate price growth over the two following years". Report author Angie Zigomanis said the drop in home prices to June this year had been caused by the government's withdrawal of stimulus spending, rising interest rates and a 50 per cent pull-back in the number of first-home buyers entering the market. But he said buyers would return as investment from the mining boom started revving up the economy through 2012. "The only question mark for us is interest rates. Our forecast is for a half a per cent rise later this year, and another half a per cent rise in the first-half of next year," said Mr Zigomanis. "In an environment that is strengthening, we can probably handle that at current price levels. People have factored those rate rises in, so as the economy picks up people will wade back into the market knowing that there is a couple of interest rate rises on the horizon." He said the forecasts were based on unemployment falling below 4 per cent in "a strong economic environment" where rising wages and inflation would see the RBA hike rates. "Housing rates are consequently forecast to peak at 9.4 per cent by the end of 2013. While the momentum in purchaser activity is expected to continue into 2012-13, rates at this level will eventually bring about a downturn in both the residential market and the economy over 2014." City by city Mr Zigomanis forecast Sydney's median house price to be $640,000 in June 2011, or a 1 per cent rise on a year earlier. The report noted that house prices would "remain 9 per cent below the peak of March 2004" but home loan affordability was "at its best level since 2002". Melbourne's forecast median house price would hit $575,000, a 3 per cent rise on a year earlier, but Mr Zigomanis noted there was "little upward pressure on prices" as the construction of new dwellings was beginning to exceed demand. In Brisbane, the median house price would slide 4 per cent over the year to $440,000. The report noted that "underlying demand in the Queensland market has been weakened by lower overseas and interstate migration inflows that have fallen to long term lows". The Gold Coast and Sunshine Coast regions were expected to have moved in tandem with Brisbane. Adelaide's median house price to June 2011 was predicted to remain static at $410,000, while Perth home prices would settle at $480,000, down 4 per cent for the year and 10 per cent since the March quarter peak of 2007. The median price of a home in Hobart was steady at $365,000 over the year to June and Canberra's median house price was estimated to have fallen 2 per cent to $512,000.