The stock markets are in turmoil, sections of the airline industry are in tatters, manufacturing is in recession - it's no wonder that consumer confidence is beginning to look a little shaky. But what of the housing market - how will it react to the continuing economic conditions and the impending military conflict?

The doom merchants have been predicting for a while that the property bubble is about to burst, but it has continued to go from strength to strength. Now, following the first tentative signs that it is slowing down, we give our reasons why we feel it will continue to defy the odds and avoid any sort of major slump.

Those who think that war is certain to be bad for the domestic property market have got it wrong - certainly according the Nationwide Building Society. The mutual reckons that this will only be the case if the war is on a scale sufficiently large enough to do significantly disrupt the global economy.

A spokesman said: "Previous military conflicts in themselves have not resulted in large changes in direction for the housing market, unless they radically altered economic conditions. Clearly the Middle East conflict in the seventies and eighties was the backdrop for the OPEC inspired oil price hikes that were largely responsible for two house price cycles between 1973-1975 and 1979-1982.

"Since then domestic economic conditions have been far more important for the housing market. The Falklands, Gulf war and Bosnia have all come and gone with little direct influence on the UK housing market. It is difficult to perceive what impact the current "war" will have on the UK economy and thus housing market

"What is clear is that the recent falls in equity markets will dampen confidence in the UK and there are some obvious direct effects on employment prospects in the capital. However, the impact on the rest of the country will depend on changing US economic circumstances. A more pronounced US downturn would harm the prospects for the UK economy and housing market over the next year or so."

Stock market valuations are linked to a hazy expectation of future growth in company profits, and are therefore pretty vulnerable to the economic shocks that can dent investor confidence. Shares and other financial instruments are also highly liquid investments, which means that people can withdraw their money very quickly - a fact that further contributes to their volatility.

Property prices on the other hand have historically been comparatively stable in their growth and are aligned to current salary levels and affordability rather than any idealistic notion of what houses could potentially be worth sometime in the future. Salary levels have risen by 4.5 percent in the past year, well above the rate of inflation and hardly indicative of an imminent crash.

Although house price 'crashes' have happened in the past, this has happened when the affordability ratio (house prices to wages) is significantly exceeding historical trends. Currently that ratio is considerably lower than when the market last collapsed. Although affordability is stretched in some areas - most notably in London and the South East - the major affordability index reveals that the proportion of take-home pay spent on mortgages is only marginally higher than the historical average.

Finally, the long-term property price growth rate of 5-6% per annum for London and 4-5% for the UK appears to be a realistic and sustainable level. The last couple of years have slightly exceeded that, so there may be some drop off in growth to bring the trend back in line, but with inflation appearing to be under control the relatively stable economic environment should also contribute to this level of growth being maintained.

The result is that housing demand remains strong in most areas of the country, with an acute shortage of housing in London and the South of England. The number of buyers usually significantly outstrips the number of properties on the market, sometimes by as many as 15 or 20 to one. This fact alone could probably prevent any significant collapse in the market.

There are a couple of long-term demographic factors that boosting housing demand by increasing the number of households. The increasing prevalence of single parent families mean that more properties are required to house the same number of people.

Meanwhile, the attractive job markets and strong currency is still pulling in large volumes of international workers, with London in particular finding its population boosted each year by people that are seeking to settle in the country for either the short or long term.

One of the main drivers of the property market is the cost of borrowing, which for the majority of the population has never been so low. Competition in the mortgage market, a succession of interest rate reductions and level inflation mean that the cost of obtaining a mortgage has dropped both in financial and in real terms. Yet interest rates are still higher in this country than in many of the world's major economies, suggesting that rates could eventually fall further to come into line with the rest of the global economy.

There may well be a short-term dip in property prices, if the market over corrects itself. More likely is that the growth will slow down for a reasonable period. But even if prices do fall, it would be foolish to start panicking. Sit tight, hold on and in a year or so, the chances are that you will once again be enjoying satisfactory growth in your asset value.

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