"The big period of capital gains in Europe is definitely over. I would expect the European housing market would slow down and I saw signs of it slowing towards the end of 2005," says Michael Ball, Professor of Urban and Property Economics at the University of Reading and author of the survey.

Ball says the slowdown would be most marked in those countries that had experienced the highest house price inflation such as France, Spain and Ireland.

The only western European country not to experience house price growth is Germany, but Ball says this could change. Germany's house prices in real terms have remained constant since the 1970s. This may change as the German government's rhetoric has become more pro-housing. This could lead over time to a convergence with other housing markets as the country's owner occupation rate increases from its current 45%, the report adds.

Julian Jessop, chief international economist with Capital Economics, says a house price correction in France and Spain could be a good thing. "At the moment it's probably more important for the German engine of recovery to get going than for Spain and other countries to continue at full steam. At the moment you run the risk of having the worst of both worlds--weak consumer spending in Germany because of the moribund housing market, and an asset price bubble in France and Spain," Jessop says. "A better outcome would be a slowdown in overall house price inflation."

The only Western European market to experience a slowdown in 2004 was the UK where house price inflation fell to 11% from 15% in 2003. "The UK market has led developments since the 1970s and its upswing and downturn trends tend to be followed by the rest of Europe in two to three years," Ball says.

He says low interest rates across the euro zone were the main driver at the moment and would help those markets to continue to grow quite significantly. But this could be upset by either a rise in interest rates towards the end of the year or by more new properties coming on stream.

Ball says one sign that the market in Spain may be slowing is that many domestic investors have pulled out of the buy-to-let market in the country's tourist areas over the last 18 months, to be replaced by overseas investors. "The highest risk to house prices is in tourist areas as this is where demand is discretionary. Domestic investors are pulling out of buy-to-let because the returns aren't there and they're worried about long-term decline."

Capital Economics's Jessop says developments in house prices are becoming increasingly important to overall economic performance. There is now a stronger correlation between house price inflation and consumer spending than between unemployment and consumer spending.