Australia could be next in sub-prime crisis, expert warns

Overinflated house prices and an increasing national reliance on debt could push Australia into a US-style mortgage crisis, a local economist has warned.

Speaking at the first Australian Mortgage Conference, Brian Haratsis of strategic advisers Macro Plan Australia warned that local property prices were inflated to such a level that it posed a risk to the country's economic stability if another financial crash were to occur.

"What would happen if we were to find ourselves in another financial fallout and house prices were to significantly drop?", he said. "We need to be asking what we can do to reduce the cost of housing over the next decade through regulatory and taxation means to avoid such a threat to the mortgage industry and the economy as a whole".

House prices in Australia are currently inflated to around 20% above their actual value, while a recent study from local lender BankWest found that 78% of housing in suburban areas was out of the affordability range of most middle-class professions. An increasing reliance on debt to purchase property at these prices would lead to chaos if another crash were to hit, with individuals left sitting on worthless assets and little expendable income.