ANZ Bank is predicting that home prices in Australia will stabilize this year and remain flat to an average of $550,000, as a consequence of expected rising interest rates.

In 2009, Australian house prices reached $460,000 and went up to about $550,000 last year. Prices are expected to plateau if borrowing becomes more expensive.

"Further price weakness is expected over 2011 as the prospect of additional rate rises weigh on both affordability and investor sentiment," ANZ senior real estate economist, Ange Montalti said in a statement.

"While the market is vulnerable to weaker momentum becoming more entrenched, good support from healthy economic growth and a further tightening in rental markets should begin to shift perceptions over 2011-12."

The bank also says house rent prices will jump next year as number of houses available will not be able to meet demand with rental vacancy rates to reach below 2 percent in 2011.

"Builders will remain cautious while margins are vulnerable to sluggish house prices," the ANZ report said.

The number of construction starts on new homes are forecast to drop to 131,000 for this year until 2012, a plunge from 149,000 reported from 2010 to 2011 period.

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