The biggest global housing boom in three decades may end not with a bang, but with an extended whimper that will keep the economy growing.
Markets for dwellings in the United States, France, Spain, New Zealand and parts of China are slowing down as home-price inflation slows in response to higher interest rates. So far, the rise in borrowing costs has been modest, giving builders and buyers time to adjust.
"We're seeing a cooling-off of the housing market," said Raghuram Rajan, chief economist at the International Monetary Fund in Washington. "We haven't seen a bust."
Housing prices in industrial countries have doubled in real terms in a decade, the Organization for Economic Cooperation and Development estimates. If prices ease rather than collapse, the world economic expansion may be able to continue without sustaining too much damage.
"The global economy should remain buoyant," said Nariman Behravesh, chief economist of Global Insight.
He sees world growth slowing to 3.3 percent next year from 3.8 percent in 2006.
The moderation in housing should help bring world trade back into better balance. The boom has been concentrated in countries with big trade deficits: In the United States, consumers have used the equity in their homes to finance a spending spree that included imported consumer goods. As the boom ebbs and consumers pull back, trade deficits will shrink again.
In the first quarter, the average global house price was 6.1 percent higher than a year earlier, according to an international real-estate adviser, Knight Frank.
That is down from a 9.3 percent year-to-year increase in the first quarter of 2005 and a peak of 10.9 percent in the third quarter of 2004.
The odds of a debilitating price bust will rise if the Federal Reserve chairman, Ben Bernanke, the European Central Bank president, Jean-Claude Trichet, and other central bankers lift rates sharply to fight inflation.
Paul van den Noord, a senior economist with the OECD, concluded in a paper last month that a 1 to 2 percentage- point increase in rates would increase to 50 percent or more the chance of a home-price collapse in the United States, France, Denmark, Ireland, New Zealand and Spain.
That is what happened in 1980, when Paul Volcker, then the Fed chairman, raised the benchmark rate to 20 percent, sending the U.S. housing market and the economy into a tailspin. The Fed, which lifted its rate to 5.25 percent last week, also indicated that it might take a break after two years of increases.
U.S. home prices were 12.5 percent higher in the first quarter of 2006 than they were a year earlier, according to data compiled by the government's Office of Federal Housing Enterprise Oversight. That was down from 13.3 percent in last year's fourth quarter, and is the slowest rate of appreciation in more than a year.
"We're right on course for a soft landing in the housing sector," said David Lereah, chief economist at the National Association of Realtors in Washington.
Historically, just 17 percent of local housing booms in the United States go bust, according to the Federal Deposit Insurance, a government agency that regulates banks. And that typically occurs only when local regions are under severe economic stress, like Texas in the mid-1980s after oil prices plunged.
"Busts have been pretty rare," said Richard Brown, chief economist at the FDIC in Washington. "The most common way for a boom to end is through an extended period of stagnation."
Some of the hottest housing markets in Europe are also slowing down. Annual house-price appreciation in Spain declined to 12 percent in the first quarter from 15.7 percent in the first three months of 2005. In France, prices for existing homes rose at 14.2 percent in the fourth quarter from a year earlier, down from 15.7 percent in the first quarter of last year.
Even in markets like Ireland where prices are still galloping, a slowdown is likely as tighter credit begins to bite.
A region-wide crash does not look likely. Julian Callow, chief European economist for Barclays Capital, expects euro-zone house prices to rise about 7.5 percent this year after increasing 8.5 percent in each of the last two years. He said that a long-awaited revival of Germany's economy and housing market should help offset weakness elsewhere.
Harvinder Kalirai, head of research in Sydney at State Street, said Asian housing markets would be helped as living standards rise to industrial-nation levels.
"Countries are getting richer, and housing prices will rise with incomes," he said. "It's a multiyear, if not multidecade, view."