House-price booms are sometimes followed by busts in which inflation-adjusted housing prices fall by 15 percent or more. This paper examines why housing markets are especially vulnerable to booms and busts and develops the hypothesis of disaster myopia which may lead both borrowers and lenders to underestimate the probability of a shock to the housing market. New Zealand has enjoyed a sustained boom in housing prices. This paper reviews a variety of evidence – indicators of affordability, measures of asset market equilibrium, and econometric models based on fundamental determinants of housing prices – to consider whether the house-price boom has gone too far and will end in a bust. While the evidence is mixed, the possibility of a bust cannot be dismissed.