Suppose the gloomsters are right. Suppose house prices do fall significantly. Suppose there really does have to be a significant adjustment to bring residential property values back towards their normal relationship with wages. How do we as a nation best get there?

Take a 20 per cent fall in average home prices from the present £197,000 to £158,000 over three years. That might sound cataclysmic, but it is not a particularly extreme outcome. Such a fall would bring prices back to levels of two years ago and would still leave the ratio between prices and earnings stretched by historic standards. But what would be the best path for such a fall? What would be optimal - or least damaging, anyway - for the wider economy? Is it better that prices should slide gently but continuously for three years? Or would a quicker and deeper plunge in year one, followed by two years of stability or even gently rising prices from a new lower base, be better?

It is a question that hasn't really been addressed. It is becoming more pressing, though, as the market turns. Figures yesterday from the Royal Institution of Chartered Surveyors show how quickly sentiment is souring. A very significant majority of estate agents are reporting falling prices. The volume of transactions is sliding, buyer inquiries are dwindling, while the stock of properties languishing unsold is rising.

It's not all doom and gloom. Sound demographics and supply constraints still provide underpinning. Taylor Wimpey said yesterday that while this spring would be subdued, the medium-term outlook was promising.

Conventional wisdom has it that a prolonged and gentle slide in prices would be preferable to a more sudden jolt. The latter would be too much of a shock, making people feel poorer and leading to a collapse in consumer spending, which accounts for two thirds of the economy. A sharp economic slowdown, a recession even, would be inevitable. Yet the former looks no picnic either. A prolonged period of shrinking wealth levels could be more painful still and ultimately lead to more economic damage. Employers might weather a short-lived shock without slashing jobs and pulling capital expenditure plans. Several grinding years of slow or no economic growth, however, could be worse for business confidence overall.

Given the choice between pain today and pain tomorrow, ministers, business leaders and consumers will usually opt for the latter. However, classical economics suggests that the quicker prices adjust to a new equilibrium, the better for efficiency, not to mention the millions of first-time buyers currently priced out of the market. A short, sharp shock might be the lesser of two evils. Just don't expect estate agents to agree.

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