The risk of massive defaults on subprime mortgages and heavy debts now poses a bigger threat to US economic prosperity than terrorism, a panel of US business economists said yesterday.

"The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the US economy," the US National Association for Business Economics (Nabe) said.

The conclusion was based on a survey of 258 Nabe members conducted between July 24th and August 14th, and updates a survey completed in March.

Only 20 per cent of members said terrorism was now their top concern, compared with 35 percent in March.

"Meanwhile, 18 per cent of those surveyed pointed to the effects of the subprime debacle as their biggest concern, and the related issue of 'excessive household and/or corporate debt' was cited by another 14 per cent," the association said.

But for all the concern about current conditions in mortgage markets, Nabe members remained upbeat about the longer-term outlook for the housing sector.

"The five-year housing outlook remains largely positive," the survey said. While 42 per cent thought housing prices would be flat over five years, another 41 per cent predicted they would rise, compared with only 16 per cent who foresaw a price drop.

A growing number of Nabe members now see the US housing boom of the early 2000s, when prices were shooting higher, as a credit-induced bubble.

Nabe said 29 per cent of members felt the boom was a "serious national bubble", up from 14 per cent two years ago.

While about 60 per cent of Nabe members approved regulators' moves to tighten mortgage lending rules, more than 90 per cent considered they were "too late" in doing so