Faltering housing markets have been central in exacerbating the global crisis and in prolonging its lacklustre recovery. This column warns that similar troubles may lie ahead. In examining the complex interactions between housing investments and stock market investments, evidence suggests that an increase in housing values reduces equity holdings. This correlation is important, and potentially problematic, because housing values are currently creeping back towards pre-crisis levels in many Western economies.

Despite its meagre real returns in the long run, many people still think that investing in housing is a good idea. This column argues that a major reason for the tendency to buy houses is that it’s rare to lose money. Recent research shows people’s perceptions of housing transactions to be shaped by whether they gain or lose money – above and beyond the real returns.

For a while now, analysts have been arguing there is a bubble in China’s property market. Using records from 35 major cities this column finds evidence of a housing bubble. It compares house prices to cointegrated fundamentals and finds that property in China is in general overvalued by around 20% – and even more so in the boom towns.

In much of the Western world, the decade prior to the global crisis witnessed soaring house prices. While the debate on its causes continues, this column finds that the property booms owed a significant part of their ferocity to large capital inflows and low interest rates.

Several academics, policymakers, and regulators emphasise the role of foreclosures in the Great Recession and subsequent global crisis. This column provides one of the first attempts to show this empirically. Using micro-level data from all US states, it shows that foreclosures had a significant negative effect on house prices, residential investment, durable consumption – and consequently the real economy.

US Congressional committees are now grilling bankers on the complex instruments that provided subprime mortgages with a veil of security. This column presents new evidence that subprime mortgages had more serious consequences – they were a key factor in the US housing-price boom. When house prices faltered, subprime mortgage holders defaulted en masse, eventually leading to the global crisis.

How did we get a housing bubble? This column describes how well households predict the market values of their homes. Most homeowners overestimate the value of their properties by 5% to 10%, primarily due to the large expected capital gains implicit in the self-reported home values. Overly optimistic expectations about the evolution of house prices may have planted the seed of the current mortgage crisis in the US.

Recent housing finance innovations have changed the relationship between house prices and the business cycle. This column suggests that these changes amplify spillovers from the housing sector to the rest of the economy and recommends that monetary policy respond more aggressively to the housing market.

Euro-area housing prices have risen almost as much as those of the US. For decades, euro-area housing prices have followed those of the US quite closely. Are Euro-area housing prices headed for a slump?

Economists can’t say: “we told you so.” Economists don’t have perfect foresight. But like doctors after the outbreak of a contagious disease – economists can tell you how the disease might spread, so that you may be better prepared. Here are some of the possible dangers ahead.