However, in America the steam has come out of the housing market. In the year to the third quarter, the index of house prices compiled by the Office of Federal Housing Enterprise Oversight (OFHEO), a regulator, rose by 7.7%, the smallest year-on-year increase for three years. In the quarter itself, prices rose by only 0.9%, the weakest for more than eight years.

The National Association of Realtors reported that the median sale price of existing homes was the same in October as in September, 3.5% less than a year before; according to the Census Bureau, the median price of a new home bounced up in October. But both figures have been affected by a shift in the regional pattern of sales.

Only in the West, where homes tend to be among America’s biggest and dearest, did the number of existing or new houses sold increase in the month. In the North-East, sales of new homes dropped by 39%. Across America, existing-home sales were down by 11.5% in the year; those of new properties were down by a quarter.

A huge number of homes is awaiting sale: 7.4 months’ supply of both existing and new properties. David Rosenberg, an economist at Merrill Lynch, points out that inventories of new homes are 40% above their historical norm. The number of new properties completed but not yet sold has risen by 50% in the past year, to 166,000. America’s builders are cutting back hurriedly. In October alone private residential-construction spending fell by 1.9%; it was 9.4% lower than a year before.

Although America’s bubble is deflating, other markets are still looking decidedly frothy. Denmark tops our property-inflation table; elsewhere in Europe, house prices in France, Spain and Ireland are still simmering. In Australia and Britain, where it once seemed that property markets had levelled off, prices have picked up again, rising by 9.5% and 9.6% respectively to November of this year.

The Australian figure disguises marked regional variations. Prices in Sydney rose rapidly in 2003, fell in late 2004 and 2005 and are (just) increasing again. In sizzling Perth prices rose by 46% in the year to the third quarter. In Britain too the pace varies from one area to another: in the year to the third quarter, prices in Northern Ireland rose by a third, according to the Nationwide building society, while those in the north of England rose by less than 1%. But the renewed pep in the national pattern has revived talk of a housing bubble.

In a thoughtful recent study David Miles, of Morgan Stanley, tries to explain the doubling of real British house prices in the past decade. Some of the increase, he says, can be ascribed to rising real incomes; a smaller share can be explained by increases in population; some can be put down to lower real interest rates (including the keener pricing of mortgages by lenders). However, a lot of it is speculative. Between one-third and one-half is due to increased expectations of house-price inflation. These amplify the effects of other factors. Faster increases in prices foster the belief that future increases will also be stronger, so that higher prices fuel demand rather than dampen it.

The need to explain so much of Britain’s house-price inflation by a change in expectations, writes Mr Miles, “suggests that the current level of house prices may be rather unstable.” Once those expectations come down, real house prices are likely to fall. The trouble, of course, is predicting when.

The Economist Newspaper.