The risk of a correction in Australian house prices is high by...

The risk of a correction in Australian house prices is high by international standards, the International Monetary Fund (IMF) says.

The IMF, which says Australian property is among the most overvalued in the developed world, has warned that about 25 per cent of the increase in house prices between 1997 and 2007 cannot be explained by fundamental economic factors such as population growth and income, The Australian Financial Review reports today.

The fund ranks Australian residential property fourth among developed nations, behind Ireland, the Netherlands and Britain in terms of vulnerability to a drop in value.

The warning comes as pressure mounts on the federal government to spark competition in the home-loan market and assist non-bank lenders affected by the global credit crunch to secure funding.

Concerns about the financial pressures on households and a deterioration in competition in the mortgage market are likely to be raised when the Reserve Bank of Australia Governor Glenn Stevens appears before a parliamentary committee in Sydney today.