Bubble? What bubble? The last Economic Outlook from the Organisation for Economic Co-operation and Development argues that UK house prices are overvalued by 30 per cent, or even more. It also warns of the danger of a protracted period of house price falls, with dire implications for consumer spending. The OECD is not alone. But these pessimists are wrong.

If there were a bubble, there would exist a systematic, albeit temporary, deviation of prices from fundamentals. Our research shows, instead, that fundamentals adequately explain the current level of house prices.