Rapid increases in interest rates have slammed Australian home owners with a mortgage to a point where they are now making the highest repayments in the developed world. Thankfully, one consolation is that generally house values are holding up.

I know there is a big increase in home repossessions and loan defaults, and property values are relatively stagnant, but compared with the rest of the world our real estate prices are staying pretty solid.

The question now is whether Australian residential property prices are overvalued and could we see the same sort of cracks which are happening overseas.

The news from overseas is just appalling. A recent US house price survey by the National Association of Realtors recorded an average 7.7 per cent drop for the year to March - the biggest fall since records started in 1982.

Would you believe states such as California and Florida are seeing average falls of up to 30 per cent over the past year as the credit crunch bites hard. At this stage 1-in-194 homes in the US have been repossessed and that ratio is climbing constantly. There are reports that some financiers are repossessing homes and then asking the owners to stay rent free to protect the property from vandals.

Now there are fears this sort of property crash could spread to Britain based on its current valuations. Average house prices in Britain are running at six times average earnings, which is way above the historic average of 3.7 times wages.

Australian residential property values are currently double Britain's historic high - 12 times earnings in Sydney and 10 times in Melbourne.

Australian mortgage repayments are 57 per cent of average incomes compared with 50 per cent in Britain where the historic average is just 30 per cent.

A recent survey in The Economist magazine says Australia has the most overvalued residential property in the world.

All these comparisons make for very nervous reading and you'd think would point to an impending crash the size of that in the US. That may very well be the case a few years down the track.

But for the moment there appears to be a couple of significant planks underpinning Australian property values.

Firstly, the high skilled and business immigration numbers combined with low construction levels is creating a shortage of supply accentuated by the banks tightening development financing.

Full employment also means that even though higher loan repayments are stretching family budgets, household incomes won't fall.

The other factor is the rental crisis. Strongly rising rents are usually a precursor to rising values as investors chase property to take advantage of the strong yields.

For property owners it looks like a crash in values isn't on the cards for at least a few years. For those looking to get on the property merry-go-round for the first time, property is not going to get any more affordable either.

But it seems there is hope of picking up an affordable bargain if you know where to look.

Last week on my Sunrise program we interviewed Terry Ryder who is a former property writer and now runs a business called Hot Spotting, which analyses property issues.

Terry Ryder put together a list of the top 12 places to buy a house for under $200,000. Yep, $200,000 and many on the list are well below that level down to $90,000 in one area.

Now before you chortle and say they must be in the middle of nowhere, Ryder's 12 locations all have good community facilities and reasonably good employment prospects for people moving there, because they're booming.

There are only two locations on the list close to a capital city - Melton near Melbourne and Elizabeth on the outskirts of Adelaide.

Ryder says most areas close to Sydney and Brisbane were priced out of this list.

His personal pick is Parkes in regional NSW because of its location as a transport hub.

In Queensland, Charters Towers is the best pick while in NSW there's Broken Hill, Glen Innes and Inverell.

In Victoria, the best buys are Gippsland, Melton and Mildura.

Further south in Tassie, George Town and the Rosebery-Zeehan area are on the list.

In South Australia, Elizabeth rounds out the top 12.