In the history of asset bubbles there has never, ever been a soft landing in any asset class. Soft landing for the property bubble? I don't think so.

docsherlock, kandahar, afghanistan

Dear James, NI, UK. Don't try to understand it. It's all spin.

Fabio C, London, UK

David in Cambridge. Japan's population is approx 130 million and its area is far greater than the UK also.

Chris, zagreb, croatia

The big overiding factor which will see a massive house price crash is DEBT!. Families are bogged down with it, both mortgages and credit cards. Shops are already feeling the pinch. Its possible to walk up to the counter and pay without queuing now whereas at this time of year shops are usually busy. As for buy to lets, they are already getting out before the slump. 50% reduction in house prices within 2 years

sophie, london,

The hawk Mervyn King will not be easily persuaded to cut interest rates. The one thing I am sure of is that King will act too late if there is a big fall in property prices and subsequent hit on comsumer confidence. He will still be looking at his inflationary outlook 2 years away!

Perhaps higher house prices are justified, but the levels of consumer debt are not. There is talk of a pensions time bomb but rather than encouraging people to save, the banks seem determined, even now, to encourage people to get into further debt. The banks have acted like there is no tomorrow, a selfish and short sighted attitude with no hint of criticism from the regulatory authorities. But then let's face it the consequence for those in the city will be a cut in their bonuses while the rest of the country pays for the real price.

Luke Neave, london,

The peaks and troughs of the market are but noise. Two further long term effects are often ignored.

1/ Lower real interest rates means people can take on more debt, yes.

They also mean they need to save more for their retirement pots (which also need to be bigger because of increased longevity).

2/ The rate of household formation is currently higher than the house building rate. This creates the excessive demand.

This balance will shift as social and demographic effects stabilise (in addition to higher buildings) to excessive supply.

RICHARD BOYCE, HAYWARDS HEATH, Sussex

Andrew Farlow, an Oxford economist, has examined all of the arguments which might be used to explain UK house prices, including increases in demand, lower interest rates and all the rest.

Either question his assumptions or accept that this is a massive bubble. But to continue churning out "explanations" of Britain's house prices which are demonstrably no explanations at all is simply ridiculous

Craig Ross, Glasgow, UK

I thought interesr rates were set to control consumer inflation not asset prices. When house prices were increasing we were told that the Bank of England could not set interest rates to control asset prices.
Given that this is true on the way up surely the corollary is true on the way down.
Therefore why do we assume that the Bank of England will cut interest rates if house prices are falling partricularly if inflation is still threatening.

James, NI, UK

Salaries up by 2-3%/annum and house prices up by 9-12%/annum is just not sustainable in the long term. The optimists say everything is OK because the mortgage still only represents 30% of income ... problem is its 30% of two incomes now because both husband and wife have to work to pay the credit cards and the mortgage. Australia is in the same boat except that the amount of credit is getting ridiculous.
Something has to give at some stage. It ain't rocket science!!!

Dinoz, Brisbane, Australia

Sir
With regard to buy-to -let, I think that the real buy-to- letters are the ones that have held property for the long term.
The new investors to the market are just short term speculators in it for a 'fast buck'. These are the people who will be hit hard if the predicted fall in prices occurs.
David from Cambridge, I don't know how you get a return of 10k when you factor in all the expenses of buying and selling?

John, Newport, Wales

The comment about Japan is a bit misleading but raises a good point. Japan's landmass and population do not compare well to the UK. Japan has twice the population of the UK. However, it also has one and a half times the land mass. Therefore space in Japan is considerably more constrained than in the UK, especially when one takes into account the areas of Japan which are effectively uninhabitable (tiny islands, mountainous regions and so on). Yet property prices have remained stagnant for twenty years as David notes. To put the point about their economic slump into context, I have met more than property speculator in Japan who bought in the mid-eighties and whose properties are still only a tenth of their original value.

tigerlilygrr, London,

House prices at 10 times my salary as a secondary school teacher at the age of 35 is a catastrophe for me and the majority of my profesional friends. I am having to advertise for a housemate again with all the stress and upheaval that entails (I had to take court action against the last one for a £1000 debt as the housing association insists on a tenancy agreement that makes me liable for the other person's rent). It's pointless me decorating, putting up shelves or planting the garden as I could be forced to move at any time. Even more serious is the effect that this insecurity has on working people to have families in a secure situation. Buy to let landlords have done well at the expense of people like myself who are paying 'dead' rent rather than owning a modest place to live. Property should not be an investment at the expense of a home to live in.

Dan, Oxford, England

"entrenched low inflation"

of course, if you believe the governnment's numbers. look at gold, oil and food, all on the up. Children's clothers made in china can't be £2 forever.

The only option for the central banks, if the politicians want to get re-elected in the UK and US, is to print money. House prices may not crash in £ terms, as we inflate our way out of this mess, but in gold, euro and every other real term they are crashing already.

If you are young, and have no mortgage debt, this is a once in a lifetime opportunity to make some certain returns. Buy gold and watch the UK depreciate against it.

Paul Jones, London,

the other thing that will maintain house prices is the fact that, although a "few" more first timers will be able to get on the ladder, the prices will still be too high for the general majority, plus, not all BTL owners will need to panic sell, and therefore; demand will still be more than supply and price growth will (at worst) slow down dramatically. falling prices are the property of distressed sellers or the easily panicked people...!

and then.......BOE reduces rates, city boys get bonuses, more people take their cash out of northern rock, etc......buy properties which now look "cheap", and the whole thing starts again!

Sherriff, London,

The author seems to have made at least two key assumptions while saying the prices might stagnate over a few years i.e. prices hovering around 0% growth. Historically there hasn't been a post-bubble period where prices have stopped growing and stayed at zero. The problem here is the vicious circle. Slowdown in house prices-> Spending decline ->Job Cuts in service related jobs -> Repossessions ->further slowdown
1) Today it is imperative that both partners hold a steady job to service a mortgage, pay off the bills and put honestly simply live a normal life. Once one person looses a job you're in trouble.
2) Inflation drops hence interest rates can be cut when the economy slows down. Just look at the US. Prior to the last 0.5% cut, for almost a year so-called experts were saying rates should be cut but inflation has refused to come down despite the slowdown. Real inflation (RPI) is at 4.1% and rising quickly CPI is a fudged index to make borrowing cheap.

Bebedi, London, UK

I've been reading this article, or versions of it, regularly for the past 5 years. Whenever there is a rise in property prices you can guarantee commentators predicting a fall. If it keeps getting written about, eventually the timing will be right, it will happen, and those who 'predicted' it will feel proud they got it right. Surely any of the above scenarios are possible - soft landing, big crash, etc. Boring answer is to not overexpose yourself to any risk.

Naomi, London,

Re Replacement of fresh milk by UHT. The chickens will have to go. Any advise on how to make my garden cow friendly?

michael heal, old buckenham,

I have rarely read such a prevaricating article. If you read the responses and especially the one about Japan, you will see that the UK domestic property game has got a bit silly. Like all speculative bubbles it depends on yet another sucker. I can't help feeling that the suckers may be waking up as credit and credibility dries up.

John Barnes, Overijse, Belgium

While the long term prospect of the housing market is relatively bright, it would nevertheless have trough at least in the short term. If we look at Hong Kong for example, between 1997 and 2003, property fell by as much as two-third overall. But since 2004, it has recovered with lightning pace and prices of some properties have even exceeded its pre-1997 level. Something similar is likely to happen to the US and UK property market, though prices may not necessarily fall by as much. I predict that the US market will hit rock bottom around 2009 or 2010. If you are patient enough to wait that long, then that is the time when you should enter.

Peter, Hong Kong,

Why do so called experts keep comparing today's market to the eighties? In 1988 there wasn't 1m Eastern Europeans and half milliion asylum seekers to bolster the buy to let market like there is now. In the inner cities, I'd wager social security pays most of the landlords mortgage!

mark, Peterborough, UK

"My caveat is that I only know about that part of central London where I live and the local employer, the City. It might well be disastrous outside of central London, but here the economy is still very strong."

Did it ever occur to you that maybe Central London isn't a valid indicator for the rest of the UK?

Jamie, Outside London, UK

Charlie, London. Do the maths. Supply and demand. Demand to buy property is low. Why? Lack of affordability. That and there's only so much money in the world.

House prices can't continue rising and rising. If so, people in 10 years will need £800 cagillion squillion to buy a one-bedroom flat. That amount of money doesn't even exist.

Once house prices level off, the offers over culture evaporates because people will not be prepared to pay over the odds for something that they have no confidence will continue to provide inflation-busting rises in value.

Once the offers over culture evaporates, the market starts to go down. When the market starts to drop FTBs still won't be prepared to pay a sizeable portion of their income towards something that is decreasing in value.

Demand for over-priced homes? Not good.

Elementary maths. Every time your house increases above wage inflation you make it more difficult for your own children to own a home. High prices = poor kids!

Marc, Aberdeen, UK

If house prices do collapse does this mean that the Inheritance tax threshold changes announced by the Tory Party will be revised downwards or will they remain as they are but benefit the really wealthy as opposed to just the wealthy ?

David Dee, Canterbury,

House prices have been overvalued since 2001

They've got a long way to fall

House price inflation is a product of easy credit of which there has been far too much, not sound economic fundamentals or supply and demand.

Prepare for hard times

Matt Myers, Redhill, UK

charlie, london. You couldn't be more wrong. The people flooding into the UK (if indeed they are 'flooding in') are largely eastern Europeans coming from countries where average wages are 200 pounds per month. They are here to do the dirty work on the cheap and whilst they might be propping up the lower end of the BTL market, their long term impact will be minimal. As the UK economy is built upon debt and the property bubble these migrant workers will be away once their employment dries up. In the meantime, there are plenty of wealthy brits who have sold up at the height of the market leaving the UK with their loot, further weakening the economy. As for for 'doomsayers' being wrong for the last 8 years, so what? The one thing which can be said about all bubbles and all busts is that most people get the timing wrong - otherwise they wouldn't be caught out. The difference now - the crash is here - take the blinkers off and look around! The only uncertainties, how long and how low?

Clive, Sussex, UK

If anyone is in any doubt that property prices are falling just go to this website and type in your post code.

http://www.propertysnake.co.uk

It makes interesting reading!

Derek, Bath, England

Bring on the house price crash!!
The only people who benefit from double-digit house price growth are those who have property as an investment.
Why should you care if your house is worth 50p if you could buy Buckingham Palace for a tenner?!
An economy whose main engine is that of demand for housing constantly outstripping supply is akin to a cash pyramid which will eventually collapse.
And anyway, what will we do when the last blade of grass is concreted over in the name of GDP growth?
The only people rubbing their hands here are those who bought houses years ago as an investment. Anybody else should welcome a crash in prices (unless of course they borrowed against the increase in value!!!).

rob, Paris,

We've been hearing this news for eight years. In the meantime, properties have doubled in value.

There won't be a crash, just an adjustment. Its basic economics, supply and demand: more and more people are pour into the UK, with fewer properties available. Do the maths.

I usually hear the "prophesy of doom" from people who don't actually own property, and who can't figure out a way to scrape together a downpayment saving over a few years and buy a piece of the rock.

The old adage is true, you don't wait to buy a property, you buy property and wait. Same yesterday, same today, despite the new forecasts.

charlie, london,

I think something very scary is going to happen to the UK property market.We cannot go on as we have the last 10 years led by a doctor of spin giving the BOE a false inflation target to aim at.Had the BOE targeted the RPI not the CPI the economy would be in much better shape and house prices would be lower.The economy is now very ill and what is needed is not a master of spin but a proper doctor.Time is runnung out as the 1st November election has been cancelled.The next 2 years could be very interesting,especially if the BOE are allowed to be INDEPENDENT.

steve, Eure, France

The shortage of supply argument is weak and suggest a very London centric view of things. Google 'UK house price crash - quiet before the fall (2007)' for a more complete analysis.

gordong156 , MK, UK

It never ceases to amaze me that 99% of posters on property blogs are of the hand wringing type. Barring some catastrophic event the UK property market is not about to crash. Employment is high, credit is still readily available and from these blogs I see no end to the obsession with owning property.

My caveat is that I only know about that part of central London where I live and the local employer, the City. It might well be disastrous outside of central London, but here the economy is still very strong. Wait until the increased bonuses are announced in December then tell me there is still going to be a crash.

Gareth, London,

My Mum told me that she thought house prices were likely to fall soon. When my mum, proud of how much her property is worth, tells me that I cannot see how a house price crash can be avoided.

A small point on the economics in the above piece. Gary Duncan states that a small decline in house prices will see a lower pound and lower interest rates. I fail to see how they will coincide given that a lower pound in an environment where we import so many basic goods would lead directly to higher inflation. This is a negative reinforcing cycle that would guarantee ever higher inflation until interest rates were put up to counter. Far better to keep interest rates highish now as it would require an over-correction later to put right the damage.

To the person who has just put 13 properties on the market: I hope you spare a thought for those you have kicked out of their homes. Depending on where your flats are you could already be too late to beat the market anyway.

Steve, London, England

Once again the Environment agency is making assumptions
about energy consumption. The increase in energy required
to produce UHT milk is double that required for pasteurisation
and the extra energy required for refrigeration must be impossible to calculate. The main objection to UHT milk is the taste both on it's own and when used in tea.
The department is fond of making false assumptions - the energy used by using standby facilities on electronic equipment assumes that every set with standby is used on standby. My family & friends certainly don't use the facility mainly due to the increased fire risk. Indeed the Fire Service have had TV adverts warning people of the danger.

D. Arnold, Leeds, England

Asia has serious inflation problems, which will inevitably lead to an increase in their prices. Thus we will be importing inflation, along with a global surge in oil prices, inflation will be here to stay. I cannot forsee any reduction in interest rates, America has seen a jump in its inflation since its base rate reduction. The American stock market is defying gravity, very soon it will drop and the recession that already exists, will be confirmed.
Unlike the last house boom, Britain is extremely reliant on the financial services industry, which will suffer heavily in a slowdown in the housing market. The housing market in Europe will have been sliced and diced and the scale of bad lending will rock credit markets just as seriously as America did.

I admire your optimism, but cannot share it!

john hughes, nagoya, Japan

"A sharp slowdown in the wider economy next year means that interest rates are set to start falling again soon... Still, cheaper borrowing should still help to shore up the market."
Well maybe but only if the sharp slowdown does not result in employment shock. No job, no borrow.

w ch, melbourne , vic

Lets assume that house prices are overpriced by 20% - common sense and history tells us that when corrections do take place there will be a drop of more than 20% after which prices will steady themselves out.

If thats not a shock perhaps the author can tell me what is ?

In most systems changes dont occur smoothly but will overshoot and undershoot before finding their natural level.

Zafar, Manchester, England

As far as I can see , Buy to Let only stacks up if rises in value of the property are factored in. As an example -- the flat below me was sold in 2004 to a buy to let speculator for £155,000. It rents out for £670 per month. There are at least two "void" months a year , and the landlord is liable for £800 a year ground rent / maintenance. Assuming no other management charges or repairs, the investment of £155,000 is returning £5900 a year, lower than most deposit accounts. If the property is mortgaged, then the landlord is losing at least £250 a month on my calculation. And this is with interest rates at 5.75%, ie very low by historical standards.Be afraid.

John , Southampton, UK

Sounds plausible and reassuring. But no mention is made of the part housing has played in the recent "success" of the British economy, enabling Mr and Mrs UK to spend 6% or so more than they earn. They are now at their credit limits. To some the remortgage door is now closed, and they are stuck with uncomfortably high credit card bills at usurious rates of interest. Lenders are hardening their criteria and their rates. The domestic spending part of the UK economy looks set to be dented .
House prices won't crash overnight but there will be a prolonged freeze in the market and prices will fall long term. The factors affecting the micro economy of house prices are a clear enough indication in their own right. When other national and global considerations are factored in property looks increasing vulnerable to a major correction.

David Bernard, St Cry, France

...Secondly, the systematic shortage of supply of property in Britain, thanks to the planning system, should continue to underpin housing valuations....

I simply don't understand why this old chestnut is wheeled out into every argument that tries to rationalise the aruments against a crash.

Will someone please explain to me then, how Japan with a similar population and land area to the UK, and which represented the most expensive real state in the world 20 years ago, with mortgages being paid over three and four generations, has seen property prices collapse and remain stagnant for 16 years, despite 0% interest rates?!

So much for restricted supply! Don't we ever learn?

David, Cambridge.

David, Cambridge, UK

My personal opinion, as a recent hombuyer, is we will see a property split rather than a crash.

Flats are going to take a beating in anything but extreme high value cases.

Flats a few minutes from the Sharston bypass in Manchester/Trafford are selling with £10k "cash back".
Thats only ever going to get worse.

Houses are still selling well in any area I see, usualy less than the pie in the sky figures they're advertised for, but if a house is bought for 80k, advertised for 100k and sold for 90k a year after purchase, I'd call that a 10k rise not a 10k loss.
I'm not sweating, the house across the road with a smaller garden than mine is up for sale for 15k more than I paid for mine, unless it drops more than 20%, my deposit is barely scratched.

Note:
I am actualy nervous, but thats because I'm a sane person, not because I'm actualy worried about house prices

Dominic, Manchester, UK

It will crash, it has to. Once the media gets hold of something, it becomes another self-fulfilling prophesy.

All the prophets of doom are preaching away, the only thing left to argue about is by how much will it crash. Take Northern Rock, the media and self-professed financial gurus got hold of it and talked the value down to nothing. Amazing, as the bank was basically solvent longterm, but had a short term cash flow problem. But there is nothing the media likes more than a crash or disaster. If everything was chugging along nicely, they wouldn't have anything to fill the pages with.

I am estimating prices will come down by at least 30 percent. Based on what? Finger in the air, like all these other clueless clots who get paid for estimating it. And I do it for FREE!!!

Dick Penlothe, Stevenage,

If average house prices are 9 times salary and in 2001 used to be 5 times and in more sensible times 4 times then surely the maths say at least 50% reduction in prices brings the price back into line not 20%. Seems that a significant market correction is required. Letting prices fall by 2% per annum won't work.

bob taylor, castelnau, France

On the other hand, the mysteriously prosperous underground economy* might well sustain inflated values, permitting only a moderate drop. Just the other day one in the thousands of dodgy daily deals was interrupted as it took place in an unnamed law firm, where a stolen Leonardo da Vinci painting was being sold to finance a drug deal.

Money which eventually goes mainstream.

----------------
* In 1988, House Banking Chairman Henry Gonzales, speaking in the late session to an empty forum, estimated that annual sales of interdicted narcotics had already reached one trillion dollars. His remarks were broadcast via C-Span and remain on the Congressional Record.

Dion Per Sona, Cardiff, UK,

Sir,
You may be right, the turbulence of the financial market are indicative. A deeper problem is social of nature people need a roof over their heads. Empty houses with people in retribution. Property; values have lost their values . Something is wrong.
Regards Dr Terence Hale Zandvoort

Terence Hale, Zandvoort, Holland

A useful (though hopefully not to be fulfilled) exercise might be to look at possible outcomes if more factors were to be of a worst case nature.

Statistics of house price increases cover a wide range of measurement, including location, type of property, mortgage approvals, completed advances, agent asking prices, agreed sale prices and Land Registry figures for completed sales. Quoting from different measures can obscure trends. Actual completed sales where money has changed hands may be the most relevant.

Increased market efficiency in a rising market along with shortage has enabled most sales in recent years to be at the upper limit of a typical spread where motivated sellers accept a lower figure than competing buyers pay. Economic slowdown, job losses and credit shortage could easily change that situation.

Demographic expectation of downsizing for retirement and pensions might be inaccurate, with a glut of such sales.

Confidence can be easily lost.

dr venables preller, Warminster, UK

It's obvious that you shouldn't buy until summer of 2008 at the earliest, by which time the situation might have become clear. There might be a 20% fall and "the chance of a 10% correction must be fairly high". From experince, negative equity is NOT enjoyable, even if you mangage to last it out. So wait and see, the only loosers are the estate agents!

James, Oxford,

A number of friends and myself had 13 buy to let properties. We now have 13 for sale properties. Have you been looking out for to let signs recently? they are few and far between. We are getting out while the going is good.

Andrew, Belfast,

I don't agree that houses are overvalued by 20%. I'd have thought it was more like 60%.

Scamp, Aberdeenshire,

5% corrections- worse case senario? Property is already acheiving lower than that where I live.

Didn't they say the something similar about soft landings at the peak of the late 80s? If the market would have steadily rose instead of climbing nearly horizontal then maybe you could make a case for an underpinning, because you dont have the boom to go with a bust. No, this mother of all bubbles is going to burst sooner or later like all the others.

nailbiter, essex, essex

"It is equally likely that the boom could end, not with a big bang, but with a whimper in which house prices barely rise for a prolonged period... "

As this is a well researched piece in a leading newspaper, perhaps the author would point to the last time this scenario actually occured in the UK housing market.

"A housing crash, while painful, need not be a national catastrophe."

This I do agree with. Although it will be a personal catastrophe for many of those buy-to-let investors who have sunk everything into property and are totally reliant on it for their retirement. How much is the state pension, about 80 pounds per week?

Clive, Sussex, UK