A classic example of this at the moment is US housing. New-build house prices in America fell 10 per cent last month and even existing home prices fell 3.5 per cent. This marks not only the biggest year-on-year decline in nearly 40 years, but also the first time that prices across the nation have fallen three months in a row.

At the same time, the market abounds with anecdotal evidence of people taking horrible hits of 20 per cent to 30 per cent off their asking prices in order to sell and of developers throwing in free swimming pools and 4x4s on top of the discounts they are already being forced to offer.

There are still some optimists out there. USA Today ran a long feature last week explaining that, while things look bad, if you “stage” your house properly — making it look “generic, almost bland” — you’ll have no problem selling. But to most casual observers the market looks like it is in meltdown.

Still that’s not the way the ever-enthusiastic British property buyer sees it: over the past week I’ve had several letters from people asking me if I think it’s time to start seriously shopping for a dream holiday home in Florida “now that prices have come down so much”.

My answer — and I can’t see how anyone could sensibly disagree — is that it is not. The US property market is fundamentally overvalued and America’s mortgage payers are overstretched. Even if, as the optimists claim, the market is already bottoming out, there is no reason to think prices will start rising soon.

Add to that the fast-declining dollar (now at a 14-year low against the pound) and why would you want to own a house in the US? Buy now and you could find yourself nursing double-digit losses from the currency effects alone.

The only possible positive is put by Stuart Law of the property company Assetz (who, to be fair, is not actually suggesting that anyone buy a house in America now). The rental market might benefit from a house-price collapse, he said, and if the dollar really tumbles, “international tourism will soar, providing great stability and demand for rentals”. I’d call that clutching at straws.

The tourism argument is used all over the place as a justification for buying property. We should buy flats in Bansko, Bulgaria, because it is soon to be flooded with skiing tourists; in Montenegro because it is about to become a premier summer holiday resort for people other than Russian gangsters; in Shetland because a recent television programme means nature lovers will be flocking to view otters in the rain next summer; in France because the demand for gîtes is infinite; and in Dubai because it’s a mecca of sun, sea and sand that will draw in increasing numbers of free-spending tourists.

There are two problems with this. First, while it doesn’t always seem like it, there has to be a limited number of tourists: even the most dedicated skier can’t lodge in a badly built breeze-block studio in Bansko and a leaseback chalet at Courchevel in France at the same time.

Second, every time you hear the “exciting new tourist destination” argument you can be sure there is an opportunistic building bubble on. Take Dubai. The city has become nothing but a huge building site. Hundreds of residential super towers are being built and it is estimated that over 50,000 properties will be completed next year and another 60,000 the year after.

If the population grows at 7 per cent, says the Egyptian investment bank Prime Group, that means there will be 33,000 spare units in 2008. To fill those up with tourists, at least 1.7m people will have to take one-week holidays to Dubai. Is it really that nice? I doubt it. Analysts at Standard Chartered say they expect Dubai property prices to fall 20 per cent - 30 per cent in the next two or three years.

I am not against property investment in principle, I just can’t see many places where it makes sense right now. I am still tempted by the German market and its relatively high yields (I’m going to Berlin to have a look) and am eyeing the Indian market.

There is little doubt that we are now seeing growth driven by India’s healthy credit market and that the fast-growing middle class is going to need a lot of new housing, but the fact that property prices have more than doubled in the big cities in the past two years makes me nervous.

Buying individual properties in India is probably too risky but, given the speed of economic growth, I am thinking about putting a small amount into one of the Indian property funds listed on AIM: Ishaan Real Estate seems as good a bet as any.

Merryn Somerset Webb is a former stockbroker and now editor of Money Week. Her views are personal and investors should always week professional advice

For more investment articles visit www.timesonline.co.uk/invest

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