If there is one single factor that has saved the world economy from a deep recession it is the housing market. Despite the sharp fall in share prices and a worldwide plunge in industrial production, business investment and profits, consumer spending has held up relatively well in America, Britain and several other economies, supported by low interest rates and the wealth-boosting effects of rising house prices. Over the 12 months to February average house prices in America rose by 9%, and those in Britain by 15%. Adjusting for inflation, this is the biggest real increase on record in America and the biggest in Britain since 1988. Indeed, house prices are rising well ahead of inflation in many other developed economies. This is odd: during past economic downturns, such as the early 1980s and early 1990s, real house prices fell. The current spurt in prices is therefore causing some economists to fret that historically low interest rates are inflating a dangerous house-price bubble.
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