THE NEWS THIS WEEK that a smallish plot of land on The Peak has become the world's most expensive chunk of real estate after Sun Hung Kai Properties bid HK$1.8 billion to acquire it at a government auction is faintly disturbing. It brings back memories of other periods of property excess. There was late 1989 when the grounds of the imperial palace in Tokyo were said to be worth more than the whole US state of California. Or there was 1987, when Wall Street bankers blew record bonuses to snap up Park Avenue apartments. And then there was 1999 when dotcom billionaires, barely out of nappies, splashed out outrageous sums on high-tech Bay Area fantasy pads. As we now know, each of these interludes of real estate madness preceded a massive stock market crash. In just over two years from December 1989, Japan's benchmark Nikkei 225 stock index lost nearly two-thirds of its value. In October 1987, the US Dow Jones Industrial Average dropped by almost a quarter in just one trading session. And in the great dot bomb of 2000, America's Nasdaq tech stock index plunged by 78 per cent in a little over two years. Given the history, investors in Hong Kong's high-flying stock market can be forgiven for feeling just a little bit nervous about the prospects for 2007 following Tuesday's record-breaking land auction. However, if you are searching for a guide to the stock market's performance next year, it is not so much Hong Kong property values you should be looking at but US house prices. There, happily, the signals are reasonably positive. The conventional wisdom linking Hong Kong stocks and US house prices runs something like this: over recent years US home-owners have been encouraged by low interest rates and soaring property prices to remortgage their houses and splurge the cash raised in an orgy of spending on consumer goods. Their shopping spree has been a boon both for Chinese manufacturers listed in Hong Kong and Hong Kong trade services companies. As a result the stock market has soared. Now some analysts fear that the US Federal Reserve's succession of interest rate increases over the past 21/2 years is finally beginning to bite. As higher mortgage rates have slowed housing demand, they worry that prices will plunge and that US homeowners will respond to their diminishing asset wealth by calling time on their consumption binge. Luckily for the Hong Kong market, a closer look at the figures does not support these fears. For one thing, US house prices are not actually falling. Sure, demand has abated, construction has slumped, and prices in the most overheated areas have cooled. But by the broadest measure - compiled by the Office of Federal Housing Enterprise Oversight - house prices rose by 7.73 per cent in the third quarter of 2006 compared with the previous year. The quarter-on-quarter rate was slower but at an annualised 3.45 per cent, it was still firmly in positive territory. Some slump. Even better, US consumers are still spending. Credit card company Visa says purchases on its cards rose 14 per cent over the US Thanksgiving holiday. The company predicts a 7.5 per cent increase in spending over the Christmas period. The effect looks set to continue into 2007. Incomes in the US are rising and with petrol prices down by a quarter since August, consumers have more cash to spend on treats. Moreover, analysts forecast a hefty pick-up in computer sales to coincide with the release of Microsoft's latest Widows Vista operating system, scheduled for the end of January. A robust housing market and strong consumer demand in the US are good news for Hong Kong. Maybe that plot on The Peak was not so overpriced after all.