HOUSE prices across Sydney will jump 18 per cent over the next three years, but at the expense of renters paying more due to the lack of housing supply, says a leading property forecaster.

By mid-2011, the median Sydney house price will climb from $560,000 to $650,000, according to a report released yesterday by BIS Shrapnel.

A senior economist at the firm, Jason Anderson, said the price rise would be spread across the city, helping cut the gap between Sydney's two-speed property market.

While house prices have fallen as much as 30 per cent in some western suburbs, they have continued to climb in more fashionable inner suburbs. But the tight rental market was likely to drive up rents and lift property values across the city, Mr Anderson said.

"In the past, you chose to buy in the outer suburbs or rent in the inner-ring suburbs," he said. But rapidly rising rents in the inner city would push many renters further west - helping landlords in the outer suburbs, he said.

A dip in mortgage rates and strong immigration levels would also boost house prices throughout the city, the report found.

If the global financial crisis eases, banks and other lenders could remove the mortgage rate hikes they have added as a response to the turmoil, it added.

The predicted 18 per cent rise for Sydney was below that expected in Brisbane, Gold Coast, Sunshine Coast and Darwin property prices.

But if correct, the jump will be a welcome relief for Sydney home owners. The city's median house price has fallen 17 per cent in real terms since March 2004.

Newcastle median house prices are expected to climb by 18 per cent in the next three years and Wollongong's are likely to climb 17 per cent. Nevertheless, forecasting house price movements is notoriously difficult.

The International Monetary Fund recently warned that Australian house prices were 25 per cent higher than could be explained by their long-term value.

In the US, few home buyers foresaw the extent of the property crash that swept the country to the brink of recession. Home prices in the US have fallen about 15 per cent in the past year, according to the influential Case-Shiller index.

Immigration was the other factor driving up prices here.

"National population growth of 1.5 per cent is expected in 2008-09, the highest since the late 1980s," the report found. "With construction of new dwellings below previous peak levels, a rising deficiency of dwellings is also evident in the extremely low vacancy rates and will drive strong rental growth in most cities."