As every schoolboy knows, if you stick a piece of sellotape onto a balloon you can then prick it with a pin - and the balloon won't burst. Will pent-up demand and interest rate cuts do the job for inflated UK house prices?

The way the high street mortgage-lenders see it, prices will be more or less flat in 2008, underpinned by first-time buyers and homeowners trading up. In the City, meanwhile, derivative contracts are implying a fall of as much as 10 per cent. Is this unnecessarily gloomy? It is true that the triggers of the last serious housing slump in the late 80s - a change in mortgage tax relief and a surge in interest rates - are simply not here. Minutes from the December meeting of the Bank of England's monetary policy committee suggest that the debate was not whether to cut rates by a quarter-point, but whether to cut by more. Recent slides in average asking prices, moreover, have been exaggerated by a wave of smaller, cheaper properties offered just before Home Information Packs became compulsory.

But there is still the possibility that the economy will slide into recession. Even if demand does stay strong, there is no guarantee that capital-constrained banks will be willing to meet it. As fixed-rate mortgage deals come to an end, repossessions will surely rise from their current lows.

After a year like this, it is foolish to pretend that traders in derivatives are any better at pricing assets than mortgage lenders. In this case, though, they do not have a book to talk. To believe that housing valuations will simply level off, before resuming their upwards trajectory, is to disregard the past 60 years of peaks and troughs in the housing market. The point to remember about the pin, the sellotape and the balloon is that it is an illusion.