AUSTRALIA'S real estate market is in a bubble that will burst and wipe out up to half the value of property, a leading US economist has predicted.

And Melbourne will join Sydney as the hardest hit.

Harry Dent, a widely respected economist and demographer who has predicted a range of economic events including the 2008 global financial crisis, pointed to falling affordability in Melbourne and Sydney where prices are ten times the average income.

"Bubbles ultimately peak when the people buying can't afford to buy it," Mr Dent said.

"Melbourne has been, actually, the biggest bubble in recent years and I would expect the biggest burst there.

"In Australia obviously the bigger bubbles are in Sydney, Melbourne, Brisbane and Perth because they had the greatest growth and the greatest limitations in supply - but not quite as much in Adelaide and other cities."

The bubble would burst after a crash in the stock market and would be linked to an anticipated crash in the Chinese property market.

Mr Dent, who headlines a Secure the Future event in Sydney and Brisbane later this month, said most global markets, from London to a number of US cities, would also face market reductions.

"I see it like a popcorn popper, different markets are bursting at different times … but all of real estate in coastal cities all around the world is greatly overvalued and they're all going to burst whether it be 30 per cent or 40 per cent ... or 90 per cent in the worst case," Mr Dent said.

He said that worst case scenario would likely be China. Surging interest in Australian property from Chinese investors could be a sign the Asian superpower's rich were afraid of a looming crash at home.

"They want to leave the country, a lot of people have already left - and their favourite places to go are Australia, Canada, the US and New Zealand and London," he said.

Mr Dent has predicted the economic and real estate bubble in China will burst in the next couple of years, and Australia would be hit hard when it does.

"The China bubble is going to burst, starting around next year, and it is going to be the biggest bubble to burst. It is the greatest bubble, the most government driven, the most extreme in valuations," he said.

"Australia is the best country to weather this downturn and take advantage of the next boom.

"But this China bubble is going to back up on resource and commodity markets and it's going to hit Australia hard and I think it's going to cause your real estate to get hit and finally burst.

"I see real estate going down 60 to 65 per cent in the US, it's probably more like 30 to 50 per cent in Australia, but that's still enough for you to say: Hey why would you go buying real estate?"

Mr Dent argued buying property and expecting significant growth, 10 to 15 per cent, is crazy.

"Your real estate bubble is peaking ... and it is going to burst pretty substantially," he said.

"So why would you want to own real estate unless you're going to live in it forever or it's very important to your business.

"And why would you speculate on real estate, that's crazy at this point."

Mr Dent's views have been challenged by a number of local commentators.

RP Data senior analyst Tim Lawless said neither Sydney nor Melbourne were in bubble markets, particularly with mortgage arrears rates at about 0.5 and 0.6 per cent across the country, but continued unsustainable growth in some areas could cause alarm.

News_Rich_Media: RP Data has found home prices have continued to climb in January, with Melbourne leading the charge.

"Value growth in Melbourne and Sydney for the last six months has been pretty unsustainable, but six months isn't long enough to do that (form a bubble)," he said.

"If we did see a high growth rate continue to the middle of 2014, that's where you are starting to get into alarming territory."

His comments come as RP Data figures today reveal Melbourne house values rose 3.2 per cent across January, bringing the city to 11.9 per cent growth year-on-year.

Only Sydney recorded greater growth, with a 13.4 per cent increase for the same period.

Real Estate Institute of Australia president Peter Bushby said Mr Dent's predictions were heavily focused on particular markets, like inner Sydney, and did not account for a broader range of factors - but he is concerned about younger buyers.

"First homebuyers are about 60 per cent of what they have been and to us that's a major concern in terms of putting more pressure on the rental market," he said.

In a pre-budget submission the REIA has called for first homebuyers to be allowed to access part of their super to help build a deposit.

Buyers advocate and market commentator Catherine Cashmore said most of what Mr Dent said was true, but his prediction of collapse was premature.

"In (our) system of real estate, cycles come to an end and there's a sharp correction, I don't think that will happen this year - but I think that if something were to happen to China it will affect us," she said.