What goes up must come down. But the opposite is also true, at least in finance and economics.

While individual companies, share prices and investment portfolios can collapse and disappear without trace - as is all too obvious to former shareholders in Northern Rock, Lehman and Chrysler - this never happens to entire economies or financial markets. That is why a relatively sanguine approach is likely, in the end, to pay off for anyone with the patience and wherewithal to ride out the ups and downs of the crisis. Nowhere is this truer than in the most cyclical, but ultimately most reliable, of financial markets: residential property.

As panic at the end of capitalism ebbs away, with banking systems and economies clearly stabilising, at least outside Japan and continental Europe, confidence seems also to be returning to housing markets - with the exception of certain markets, such as the Irish Republic and Spain. In Britain, recent signs of recovery in the property market include an increase in transactions, although not yet in prices, a big rise in mortgage applications and the most positive monthly report from the Royal Institution of Chartered Surveyors since January last year.

Anecdotally, many properties that have been on sale since last summer, have suddenly been snapped up in the past two months. In London there are even reports of foreigners, emboldened by a weak pound and perhaps the prospect of a Tory government, gazumping local buyers.

But more important than such juicy anecdotal tit-bits are the dry statistics illustrated in the chart. This graph - showing the relationship between house prices and personal incomes in Britain and America - is an updated version of one that we published in April last year.

I argued then that the boom and bust in US housing was moderate in comparison with Britain's, so anyone who saw the American housing correction as a catastrophe, should consult the Book of Revelation for the right word to describe the prospects for Britain's housing market in the year or two ahead.

What I didn't know then - in fact, what I specifically denied would happen- was that the US housing correction would precipitate a generalised economic catastrophe, via the collapse of Lehman and the entire global banking system.

As the chart shows, Britain's housing market has moved a long way in the 13 months since my previous article (the point marked with a spot). Such has been the speed of adjustment that a collapse that was spread over three years in the 1989-92 housing crash has been squeezed into just over a year.

As a result, the relationship between house prices and personal incomes has returned to its long-term average much faster than expected a year ago. As recently as March last year, the ratio was 40 per cent above its long-term average, suggesting that British houses were still vastly overvalued. Today the ratio is just 3 per cent above its historic average. This means that it would take only modest growth in personal incomes - which remains likely despite the recession - to push house prices below their historic level in relation to incomes, even without any further decline.

I am not predicting that the property market will stabilise this month, or even next. While personal incomes are the most important fundamental influence on prices, many other factors drive them in the short term: at present, the main bearish forces are unemployment and the squeeze on mortgage financing, while rock-bottom interest rates for those able to borrow are a very powerful factor pushing the other way.

Although my own view is that these cyclical conditions will become increasingly bullish, macroeconomic forecasting has been a mug's game in the past year or two. There is, however, a more fundamental objection to my suggestion that it is becoming safe to invest in houses.

Why assume that property will simply revert to its long-term average valuation and stop falling? Given that the ratio of house prices to incomes overshot by 40 per cent on the upside, why shouldn't property values fall far below their average and stay there for many years? By the very definition of an average, valuations should be just as likely to undershoot this level as to rise above it.

And exactly this kind of undershooting is now happening in the US market. Shouldn't Britain expect something similar in the years ahead?

To judge by past experience, the answer is an emphatic - and alarming - yes. In the 1990s British property valuations fell far below their long-term average and stayed there for most of the decade.

I believe that this experience is unlikely to be repeated, but my main reason for this partly undermines the argument presented above. A second glance at the chart reveals a big difference in the behaviour of US and British house prices over long periods. While American property was, until the present boom and bust, rather stable near the long-term average, British valuations have fluctuated much more wildly.

In fact, the swings in British prices have been so wide that to posit an average valuation around which prices fluctuate is probably misleading. The main reason for this difference is fairly clear. While America builds more houses whenever growing demand starts to push up prices, housing supply in Britain is limited, so changes in demand lead straight to much bigger swings in prices. But the limited supply of housing in Britain suggests that prices should rise in the long run in relation to incomes, rather than remaining fairly steady over long periods as they have in the US.

If this is the case, housing valuations in Britain are unlikely to revert to the horizontal line - or undershoot it - as they do in the US. Instead of a horizontal average, the long-term trend in Britain's house price-to-income ratio is likely to be an upward sloping line.

This is essentially the mathematical bet being made by anyone who buys a house in Britain at today's prices. It may sound obscure, but my hunch is that it will pay off.

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