The early 2000s saw a worldwide boom in house prices. In many countries, house prices increased faster than average incomes. In many countries, house price to incomes ratios reached an all time. For this reason, many feel that house prices are badly overvalued and therefore, it is only to expected that there is going to be a severe house price correction.

The future of house prices depends on many factors such as:

• Supply. If there is a chronic shortage of housing then house price to incomes ratios can rise. For example, the UK has very low levels of new housing being built. Therefore, they are less vulnerable to a long term collapse in house prices. There is still a fundamental disequilibrium between rising demand and restricted supply. However, in countries like Spain and US, there is a much greater excess of supply. For example, in 2006, Spain saw the supply of houses built reach over 800,000. The US, also has many homes unsold. Therefore, it will take a lot longer for house prices to recover in these countries.
• Long Term Interest rates. The global boom in house prices has come during a period of low interest rates making mortgages relatively cheaper. If long term interest rates remain low, it again will make a mortgage an attractive option. Long term interest rates depend to a large extent on inflation rates. There is a danger that rising oil prices could trigger inflation in many countries, requiring relatively higher interest rates.
• Economic Growth. A fall in growth and rise in unemployment would cause lower demand for housing
• Credit crisis. A prolonged shortage of credit would make borrowing more difficult and contribute to falling prices