Australias home loan interest rates are set to rise to 9% next year, causing house prices in Sydney and Melbourne to fall between 15-20% by 2008 after inflation, according to a new housing report from economic forecasting company BIS Shrapnel.

With standard variable home loan interest rates forecast to rise by more than 1.5% from a current average of 7.3% to 9% in the second half of 2006, house prices should fall, according to BIS Shrapnel senior project manager Angie Zigomanis.

He said: "Interest rates will start to get to the point where they have a significant impact on prices in the second half of 2006 and continuing through to 2007, bottoming out in 2008."