Property forecaster BIS Shrapnel expects Sydney house prices to soar 19 per cent over the next three years. Sydney's median house price is forecast to continue rising, and is expected to reach $820,000 by June 2016 from $690,000 now. Releasing its Australian Housing Outlook report on Tuesday, BIS Shrapnel managing director Robert Mellor said continuing under-supply, strong demand driven by population growth and overseas immigration would drive prices higher in Sydney, Perth and Brisbane over the three years. Perth house prices are tipped to rise 17 per cent, and Brisbane prices 16 per cent. Despite some warnings that house prices were heading towards a bubble, particularly in Sydney, Mr Mellor said affordability in nearly all capital cities was at its best levels since the early 2000s. Mr Mellor said fears of a bubble were exaggerated. Sydney house prices had really "gone nowhere" over most of the past decade. "There has been massive under-building in Sydney since 2005," he said. If I was forecasting 30 or 40 per cent price growth over the next three years, you could argue that would be way out of line with growth in household incomes. After accounting for inflation, the annualised house price growth for Sydney is only a little more than 3 per cent, he said. BIS Shrapnel expects price growth in the next three years to be muted in Melbourne (6 per cent), Adelaide (6 per cent) and Hobart (4 per cent). "These cities ... have an underlying excess of housing stock and the states are also forecast to continue to face economic headwinds in the next few years," Mr Mellor said. He said Melbourne still had a "lot of supply of inner-city apartments in the CBD, Docklands and Southbank coming onto the market over the next 18 months." Interest rates are likely to start rising from about the middle of 2015 and price growth in most cities would begin to slow, he said. National Australia Bank chief economist Alan Oster expects house prices nationally to grow only in line with wages. "We have an under-supply of houses and very low interest rates and that will keep prices rising," he said. However, rising unemployment will take a lot of the "heat out of the market." Bureau of Statistics data released last week showed the unemployment rate fell to 5.6 per cent last month from 5.8 per cent in August. But analysts said the labour market remained soft and could weaken further. Mr Oster said an unemployment rate above 6.5 per cent would have an effect on house prices. "But you would not expect major property [price] problems unless there was unemployment over 9 per cent, which is where our models say there would be trouble," he said.