AT the end of last year, looking forward to this year, I limited myself to just one prediction for safety’s sake: that the American housing bubble would deflate and the US consumer finally start to lose confidence. It wasn’t a particularly brave forecast, given that house prices in America have doubled over the past decade, but it is gratifying to see that it looks like I will be right long before the year is out.

The number of unsold houses in America is at a 10-year high, sales fell 4% in July and prices are at best stable and, according to anecdotal evidence, at worst starting to fall quite fast in some parts of the country.

All that remains to be argued about is exactly how far prices might fall. So far the numbers suggest this slowdown could turn into a genuine crash that takes 20% or more off prices, rather than one that shaves just a few per cent off prices here and there. And why not? It’s been a huge and out-of-control boom. Why shouldn’t it be followed by a proper bust? Still, whether prices fall a lot or a little, it would be something of a disaster for the average man in the street. Over the past decade, America’s banks have invented more and more mortgage products to allow those on low incomes to move from renting to buying (last year, an estimated 40% of buyers took out 100% mortgages) with the result that homeownership is at a record high.

Houses are the biggest store of wealth in America and as they go, so does the confidence of their owners. The result? US consumers are as pessimistic today as they were after last season’s hurricanes.

But it isn’t just their confidence that is getting hurt — for many it could be their livelihoods, too. Some analysts claim up to 30% of all the jobs created in the US since 2001 have been in some way linked to housing. That’s not good news. The average American household is now carrying about $90,000 (£48,000) in debt (much of it in “adjustable-rate” mortgages, which can go up) and they just can’t afford job losses.

So what next? Even the most committed optimists think it will lead to an economic slowdown. Morgan Stanley economist Stephen Roach sees it taking about 2% off 2007’s economic growth. The economy grew at an annual rate of 2.9% in the second quarter; take 2% off that and you haven’t much left. It might not be a recession, but it isn’t far off one and it won’t take much to tip it over the edge.

All this shows that investing in the US market, in particular its house builders, retail and financial-service sectors, is probably not the best of ideas. The banks have been making easy loans that may never be repaid.

It is also bad news for many of the world’s other markets. The American consumer has been the main driver of global economic growth for some years now: US consumer spending and residential-property investment accounted for 21% of the global economy at the end of last year. That number can only fall, and I think we can expect markets around the world to fall in sympathy.

However, as the dust clears, long-term investors should find some fabulous opportunities. Across Asia, companies are cash-rich and consumer spending is rising fast, which will in part compensate for the US slowdown. Hong Kong-based China Mobile is signing up 2m to 3m subscribers a month, for example, and that’s not a trend that is just going to disappear.

Asian markets are already cheap, according to Investec’s Greg Kuhnert, and trading at prices that, relative to company earnings, are “so low they can only be compared to former times of major crisis in Asian economies”.

If you are a long-term investor, you have to be exposed to Asia in some way, and if America’s troubles allow you to do so on the cheap later this year, so much the better.

Japan should also not be ignored. The Nikkei has so far managed to go absolutely nowhere this year, but the economy and the corporate sector, which has used Japan’s ultra-low interest rates to do some nifty balance-sheet restructuring, are both still in good shape.

However much we think of Japan as a global exporter and hence as an economy that moves as one with America, it just isn’t the case: only 12% to 15% of the economy is made up of exports.

There’s also good reason to think Japan’s domestic buyers will at some point return to their market. They hold only 8% of their financial assets in domestic stocks, said CLSA’s Christopher Wood, but thanks in part to rising dividend payouts, their aversion to the market is “slowly fading away”.

Add to all this the fact that this week the first male heir to the imperial throne for more than 40 years was born to Princess Kiko, and all the omens for Japan look good.

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