In the deserts around Las Vegas and Phoenix, the temperatures may be scorching, but in the offices of Wagner Homes, the climate is decidedly cool. It’s not the air conditioning either — where once the fervor for new homes was at record levels, now salesmen sit twiddling their thumbs, dreaming up ever more radical ways to shift their homes.

Las Vegas and Phoenix have been among the hottest markets in recent years, with prices surging by nearly 16% last year. This year, the picture has been rather different. Prices are flat, sales are sliding and developers are as desperate to sell off land as they were to buy it just five years ago. Home builders have been forced to pull out all the stops to keep business going. Traditionally, they may have been happy to throw in a washing machine, refrigerator, or dryer to secure a sale. Today, it takes rather more expensive items to lure buyers and anything less than a pool won’t do.

“We had three homes sitting on the block for six months without a buyer,” Wagner’s LaRae Obenauf said.”Within the past two months, we threw in the pool and we saw a big increase in interest.” All three have now been sold. Some incentives are worth more than $50,000, according to Larry Murphy of research group SalesTraq. Swimming pools, golf club memberships, home landscaping, all of them are being offered. “Home builders lower prices only as a last resort, and so prior to that they prefer to give incentives,” he said.

It’s not just in Arizona and Nevada where the market is cooling, previous hot spots such as Florida, California, and New York are all showing signs of stagnating, to the concern of economists. When the technology-fuelled boom of the late 1990s turned to dust, it was largely the consumer that picked up the slack, and much of that was down to a booming housing market. Double-digit price appreciation made owners feel wealthy and secure in their spending.

Sheryl King, senior economist at Merrill Lynch, estimates that around half of the American economic growth is directly or indirectly related to housing sales, construction, and consumer spending fuelled by home equity withdrawal. “If the stimulus is withdrawn, it provides a notable danger to economic growth,” she said. “The higher interest rates go, the higher the chance the housing market cools more abruptly and you get an outright decline in house prices.”

Some economists already believe that with the supply of unsold homes standing at its highest in nearly 10 years, the chances of a recession are growing.

“You’re going to see the oversupply get worse until we do see a very sharp reduction in prices, said Dean Baker of the Centre for Economic Policy in Washington.”That’s my basis for saying we’re looking at a very bad situation here which will almost certainly mean a recession.” Others note that almost all the housing booms of the past 50 years have resulted in peak-to-trough activity declines of more than 50%, suggesting the much hoped-for “soft landing” is almost impossible to engineer, particularly when the Fed and Ben Bernanke have so many other sets of data to consider.

Average house prices were $299,500 in the second quarter of this year, down slightly on the $305,300 reported for the first quarter, and with the full effects of the Fed’s actions in taking interest rates to 5.25% yet to be felt, there are many who believe the price will fall further.

Which is why it’s not only home builders who are offering incentives. Some mortgage lenders have been handing out Hawaiian holidays to customers, while estate agents have been offering lunch.”In this environment you are always looking to think outside of the box,” said Ellen Bitton, chief executive of Park Avenue Mortgage Group.

“Obviously we’ll have a better lunch layout for a $3 million house than for a $300,000 studio.”