DINNER-PARTY conversations about house prices, newspapers packed with ads for glitzy show-homes and properties changing hands for twice their price three years ago: recently Brazil's business capital, São Paulo, has felt a lot like pre-bust London or New York. The property fever there and in other Latin American countries makes some fear that the region's economic renaissance may have become over-exuberant. But the housing boom is grounded in rising prosperity rather than excessive debt.

In select parts of Brazil's big cities, property prices are certainly racing ahead. IBOPE Inteligência, a research firm pioneering the country's first statistically sound house-price index, says that in 2010 the average price of a new apartment in São Paulo rose by around a quarter and by much more in the poshest areas. Estate agents claim prices in such choice locations are up by 80% in three years; and that in similar parts of Rio de Janeiro, boosted by the discovery of huge oil reserves off the coast and the prospect of hosting the Olympics in 2016, they have doubled.

The property boom is being driven by a hefty increase in the number of potential buyers. During the past eight years the number of Brazilian households with incomes higher than ten times the minimum wage rose by more than half, to around 18m. The purchasing power of the newly well-off has been boosted further by greater availability of mortgages.

Until recently rules that made foreclosure difficult or impossible when a mortgage-holder was in arrears meant that lending against property was unattractive. Most homes were self-built or bought with cash. In 2005 outstanding mortgage debt was a mere 1.4% of GDP. But that year saw legal changes which meant lenders could remain the owner of a property until after the final payment, making foreclosure more straightforward. The total of outstanding loans secured on property is fast approaching 5% of GDP—still tiny, but a trebling in just five years.

Supply constraints, in particular the shortage of land in the economic hotspots, are pushing up high-end prices too. Cushman and Wakefield, a real-estate consultancy, says office rents in Rio de Janeiro are now the highest in the Americas, as businesses scramble to open in what will soon be the hub of one of the world's big oil economies. Their employees need somewhere to live—but the desirable areas of the city are ringed on one side by mountains and on the other by sea. In featureless, sprawling São Paulo it is chaotic traffic, not geography, that pushes the city's growing number of super-rich to chase central locations. Unsurprisingly, the best spots are ever more expensive.

The prices of other inputs are also rising. The government's ambitious low-income housing project, Minha Casa, Minha Vida (My House, My Life), will provide finance for a million homes, and is mopping up a big part of the construction labour force and pushing up wages. Grand infrastructure projects, such as ports and railways in the country's north, compete for everything from crane operators to cement and steel. The official construction-price index is running ahead of general inflation, and the gap is widening.

Brazil is not the only Latin American country displaying signs of property exuberance. A further example is Peru, another relatively recent victor against hyperinflation and winner from the commodity boom. Estate agents in Lima, its capital city, say that homes in the swishest seaside neighbourhoods have recently doubled in value and that the cost of building plots has trebled. Colombia and Panama look frothy, too.

The dreadful example from elsewhere of what can happen next has led some to fear a Latin American housing bust. But—for now, at least—the new, higher values look firm. For one thing, they are in the main restricted to hotspots: the best areas in the biggest cities of the boomiest economies, or close to mega-developments. According to Antônio Ruótolo of IBOPE Inteligência, Recife, in Brazil's long-poor north-east, may have seen the country's steepest price rises. The reason is the $16 billion being spent on Suape port, just down the coast, which will include an oil refinery, petrochemical factories and much else besides, and is bringing tens of thousands of people to the area. Likewise, Panama's effervescence follows from the redevelopment of its canal.

In any case, the headiest days are probably already over, says Guilherme Vilazante of Barclays Capital. The 2008 credit crunch saw many developers stop buying land and halt projects, which they restarted in late 2009. It was that hiccup that led to the big price increases of the last two years—but plenty of postponed developments are about to hit the market. Soon, he thinks, high-end housing will be gaining value at a rate closer to that of housing aimed at lower-income groups, roughly in line with the cost of construction.

Even a big drop in prices would not have the same knock-on effect in Latin America as it did in the United States. Mortgage origination is growing fast—by around 50% a year in Peru and by even more in Brazil. But the total stock of mortgages is very low: Chile has the region's best developed mortgage market, at some 20% of GDP. The United States, by contrast, went into the credit crunch with mortgages on two-thirds of all homes and total housing-finance debt of $10.6 trillion, or 72% of GDP. Underwriting practices in the region are conservative: loan-to-value ratios are typically less than 80%. Brazilians cannot get mortgages on second homes.

Beneath the froth of the luxury market, the Latin American reality is a long-standing shortage of property. Peru has a housing deficit of around 900,000; estimates for Brazil's vary from 5m to 7m. Many governments in the region are chipping away at the problem by offering subsidised housing loans to the lowest-paid. But the market impact is limited by tight government budgets. Arguably the recent price rises at the top end are simply a correction after many years in which quality housing could be picked up cheaply by the few people in the region able to pay in cash. Now they are facing competition.