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The rapid house-price inflation in many countries over the past few years is clearly unsustainable. But will house prices just flatten off or will they slump? Alan Greenspan, who criticized the stock market's's "irrational exuberance" long before that particular bubble was fully inflated, is more sanguine about American house prices. The argument that lower interest rates make homes cheaper to buy is badly flawed, because it ignores inflation. If interest rates are low only because inflation is low, then although initial mortgage payments are smaller, the real burden of mortgage debt will be eroded more slowly over time, and payments will remain high in relation to income for much longer. The ratio of average house prices to average incomes, which tracks the long-term affordability of homes, is currently flashing red in America, Britain, Australia, Ireland, the Netherlands and Spain. Mr Greenspan insists there is no "national" housing bubble in America, and indeed houses across the country are on average less overvalued than elsewhere. But if a bubble were to burst in several cities simultaneously, that would have big national consequences. House prices in America and other economies are unlikely to fall as precipitously as share prices have done over the past three years, but even a much smaller drop could do more serious economic harm.

If someone had told you three years ago that share prices in America and Europe would plunge by almost 50%, you would have braced yourself for a deep global recession. One reason why many economies have held up better than expected is that rising house prices have offset the loss of equity wealth and so helped to support consumer spending. Indeed, in America housing is arguably the only remaining prop for the economy. But by keeping interest rates low to cushion the economy from a slump in share prices, some central banks may have inflated a housing bubble. America, Australia, Britain, Ireland, the Netherlands and Spain look most at risk. Yet even as house prices start to wobble, many housing experts continue to insist that "this time is different": because interest rates will not rise significantly in the near future, they say, a slump in house prices is unlikely.