Many of the world??™s overheating housing markets are wobbling at the moment and it is not only the US housing market that is cooling off. It has long been apparent that several of the European markets - including the French, Spanish, Eastern European and Danish markets- are slowing sharply. Tighter monetary policy in the US and Europe has had the desired effect. The most speculative housing markets have changed their dynamics quite markedly and house prices have actually contemplated falling in many places.

However, we are not looking at any great collapse in the housing market. Data from the US housing market paints a mixed picture, but there are signs of the market bottoming out (see charts opposite and US article). The markets in Spain and France are under pressure after many years of boom, yet no clear picture of a downturn is emerging (see Euroland article). This could be a sign that the housing market has begun to adapt to higher interest rates, especially in the US, where the Fed went on hold seven months ago. Experience from the UK and Australia, which saw a similar slowdown in house prices after monetary policy tightening two or three years ago, shows that even after a marked boom the market can flatten out and even begin to climb again after consolidating (see chart opposite) - at least if the rest of the growth picture and interest rates re-main supportive. However, a fresh housing boom would soon dig its own grave. With the lowest unemployment in the OECD area for 20 years, the central banks can hardly allow a fresh housing-driven upswing in 2008.