There has been a history of bubbles in every modern economy. Every few years people think they have found the 'holy grail' - be it tech shares, emerging markets, commodities or that old English favourite PROPERTY.
But houses are something special aren't they - people live in them and any shortage or speculation directly effects peoples quality of living.
Of course housing is overvalued, we haven't been building enough. (housing policy - what policy?) And who has been in charge of this debacle that has caused people to invest in houses for their retirement because of their distrust of pensions (policy - what policy?). Who is responsible for the spiv like investing in 'fliping' (buying off plan - then selling on before occupying) Yes folks - it's the present government. Too much concentration on spin instead of actual workable policies. What happened to MIRAS tax relief for home buyers? Surely that would be a start to help first time buyers. GOVERNMENT - DO SOMETHING NOW

Newton, Ormskirk,

If any one knows how i can buy a house (husband and I are desparate to get on ladder) with no chance to save (we rent) and ever crazier markets do let me know!!!!

Nicola Butler, London, UK

House prices rose by 300% since 1997. They have risen 11.8% so far this year. A small drop in May doesn't mean a thing. Get real.

John Fernandez, London, Uk

Even though i think house prices are ridiculously high in many parts of the country, i think David Smiths article on house prices makes a lot of sense, i.e. house price inflation will probably slow down but there won't be a crash, unless that is we experience a recession, but that looks unlikely at the moment given the strength of the global economy.

PB, YORK,

Time to invest inn China stocks??!!(About the same level of risk as the UK Property market at current levels I think)

Jacko, wilmslow, UK

Continuing from below..

Property owners who are already in the market are not better off either. Since...they payer higher taxes, council tax and push through various tax thresholds on a higher valued property. Also higher property prices means their children (first time buyers) will balance out any gains they have made on their family homes by paying a premium on their first property purchases..

Goverments like house prices to go up because the value of the land goes up relative to other countries. A very important economic objective at the expense of buyers.

Also the bank of england must be giving its commercial/business friends a helping hand to increase property prices by keeping interest lows. BRING BACK GOVERMENT CONTROL OF INTEREST RATES.

Des, London, UK

Sellers in Norfolk are cutting asking prices on homes that have only been on the market for a month or two - normally by 2-5%. Plenty of other properties have been on the market for 6 months and show no sign of shifting.

There is also a large overhang of vacant new build flats that "buy-to-hold" speculators have bought looking the make a quick buck on "ever rising prices.” However, if they try to rent them out, they find insufficient demand to cover the mortgage payments.

Nor is the housing shortage as acute as many market boosters make out. Compare the number of households to the total housing stock and you will see that the supply gap is actually quite small (the claim that we need a 200,000 new homes a year is just an extrapolation of a short term trend).

If higher prices/mortgage payments encourage more people to share or emigrate, and encourages owners to bring more vacant properties back into circulation then the gap would quickly close.

Huw Sayer, Norwich, England

For would-be buyers who have to get a mortgage, what´s the difference?
The house prices may be lower a teeny wee bit, but interest rate is high which means these people would have to pay equally high or maybe even higher monthly mortgage payment than it is now!
Besides why should we be rejoicing for a negligible drop in housing price after oodle percentages of rise all these years....
Get real people.... Don´t be to carried away by what you read in the papers!

B. Wagner, Curitiba,

UK buy-to-let has grown by a factor of 26 since 1998!

So, expect a great deal of disruption for a great many people this time round as rising mortgage repayments force sales. You can almost see the vultures waiting to descend.

gordong156 , MK, UK

Property owners who are already in the market are not better off either. Since they payer higher taxes, council tax and push through various tax thresholds on a higher valued property. Also higher property prices means their children (first time buyers) will balance out any gains they have made on their family homes by paying a premium on their first property purchases..

Des, London, UK

I am not convinced at all we are close to any kind of crash... I can still see young people on gap years, ipods and flat TV screens everywere and big new cars in the streets. If people have a job and can afford luxuries and property is seen as an investment.. Prices will continue to grow. It's like the fashion world. You know you want it, you realy want it, you will pay for it. And you will..... Other countries have way more inflated prices with lower wages and more unemployement. See Spain or Vietnam for examples. People somehow still manage and the property still holds. The New Economy. It's crazy but we are the new slaves. The mortgage paying slaves to the world economy.

tony, barnstaple, devon

The housing market will NOT crash because of two main reasons which make it different from the negative equity of the 1980's.
1. The interest rates are only about one third of what they where back then. 2. Many house buyers now have large amounts of available cash to put into the house they buy mainly given to them or inherited from family members (ie grandparents etc) as unlike the 1980's many working class people are now asset rich and there are at least three generations of the same family who now own property. This has a major impact when a young couple buy property as in many cases they take on a mortgage but also are able to put down a large amount of cash given to them by the family towards the cost of the property, therefore keeping house prices unrealistically high and out of reach of many others who do not have access to additional funds. The Bank of England will not make any impact of reducing inflation by putting up interest rates they should look at other methods to do so

N Jones, Edinburgh,

Most of the comments here seem to be scare mongering. I think the real situation will be, many people will not sell their houses, and will wait until prices rise again.

If someone tells you a property is worth x, then x-30% is not a good deal, and you will wait to sell, unless there is a good reason.

You can not eat bricks and mortar

Jason, manchester, UK

I am afraid the tide is about to go out and we will soon see all those who have been swimming naked in the Property sea. Oh I forgot to mention that some pranksters have nicked the swimming trunks and bikinis you left on the beach and the weather forecaster says there will be sleet and snow all over the country.

anthony, london,

House prices have traditioanally crashed when first time buyers can no longer afford to buy. This already happened.. However buy to lets and investers with little investment knowledge replaced first time buyers and reduced supply. Now that the increase in interest rates makes property less attractive the investers will pull out. This will cause many properties flooding back onto the market increasing supply with no more investers only first time buyers. Hence house prices will fall to a point where first time investors can again afford property again. That needs one hell of a fall. Higher house prives only favour the wealth of the country as a combined entity and those looking to buy and sell and those moving abroad.
The Real standard of living actually falls since a buyer who earns £60,000 can only afford to live in a property that a buyer who was earning £30,000 before house prices doubled in value. Property owners who are already in the market are not better off either. since...

Des, London, Uk

People have been calling the top of the housing market for 7 years - I'm one of them! David Miles (Morgan Stanley economist) says that house prices need to fall a third. ABN AMRO says that they need to fall by half. At the simplest level you can rent for 3-4% of the purchase price and the landlord has to meet the maintenance costs. It is possible to sell your house, invest the proceeds in sound and growing companies and use the dividends to rent your house back. Put bluntly, the housing market is as mad as a box of frogs. Will house prices fall? Nope, they will probably rise. The madness of crowds being what it is this can all go on for a lot longer yet. Then we "do" the Japan thing - falling prices, recession, very low official interest rates (but nobody will actually lend due to falling prices)...this goes on for around two decades. Oh joy.

Craig Ross, Glasgow,

To those who state that the demand for housing is greater than supply, I have just one question... Is there a large number of your average Joe sleeping in the streets because they have nowhere to live?...

No of course not, there is no 'huge' housing shortage. Put simply the ownership of a large chunk of the UK property bank has shifted from private individuals/councils to private landlords who rent them out. The landlords are the self fulfilling demand that has kept prices high. The yield on rental property is now horrendous when compared to the value of the property itself, there is and has been for sometime better places to put your money.

The house of cards is about to collapse, trouble is it has gone on too long and will probably push the whole economy into melt down!

Chris K, Lingfield, Surrey

Suppy and demand is always raised as the reason why the market will not crash. Followers of this belief might be right but a few things have to be taken into consideration. There are many individuals who own multiple properties with high levels of gearing. Rising interest rates and areas where rental yields no longer cover the cost of the morgage will force more buy to let landlords and those who bought to take advantage of a rising market to sell up some of their holdings. Add the number of households on fixed rates whos' morgage deals will end , how many budgeted for 5.75 or 6%? Hence how many repossessions? A falling or stagnant market will also help to depress the cost of newer builds, as hoarding developers who bought land at a premium try to recoup their investments; thus bringing them into the reach of less wealthy buyers. Not to forget the addition of homes built each year and the possibility of new towns being built under the next government.. S&D? I wouldn't bank on it.

Jonathan , Beijing, China

All you armchair economists have got it all so wrong. Supply and demand is a factor, but if the demand (buyers) can't afford it, the price has to decrease. It isn't a case of musical chairs as there are those who already have a property and are struggling to keep up with repayments (see statistics on defaults on debt). This will all end in tears, the migrants will go home when the recession hits, this will free up property, prices will fall more etc. etc.

James, London, UK

I hate to be the bearer of bad news however the supply / demand rationale relies on achievable demand i.e. desire backed by ability to pay. The lenders and BOE are starting to restrict the cheap credit which has caused this bubble and therefore actionable demand is falling, and sharply. All the economic data points to a crash not a correction, the only question is when it will happen. It doesn’t take a genius to work out with today's climate 2007 may be that time.

SG, Leeds,

It's the mid / late 80's all over again !
I recall that period well with negative equity and vendors desperate to sell.Many people had their fingers badly burnt.The present boom has been going since the mid-90's and has to stop soon,as in the end the laws of economics will prevail.

Mike, Dunstable, England

Bring on a worldwide economic depression? So turkeys are finally voting for Christmas. Do hope James, has no relatives or friends that will suffer job losses in a depression and that they all have sufficent funds to care for their children. Think he ought to gret a full length mirror for his preening.

John, Baldock,

All the people talking about supply and demand: can you explain why rental prices have not risen (beyond the rate of inflation) in the past ten years if there is a shortage of property? I don't believe this talk of a lack of supply for one minute. On my street there are currently about 7 properties to let and almost every street in the city has at least one property for sale or for let. Lack of supply is just a simplistic interpretation of economics used to try and justify what has been an unsustainable and speculative boom.

There was a study done by a non-partial economist about 2 years ago that looked at market fundamentals in housing during the boom and concluded that only about 40% of the overall rise in values could be accounted for by lack of supply, demographic change and low easy credit. The rest was just speculative froth. Where there is speculative froth, a crash inevitably follows.

MB, Edinburgh,

It's the mid to late 80's all over again folks !
Remember negative equity,as prices fell like a roller coaster ride.Many people got their fingers badly burnt ,and the property market hit rock bottom by the mid-90's.The siuation is exactly the same today as the housing cycle has slowly turned around,and I feel that by the end of this year, we shall see the first stages of a buyer's market.My advice to anyone even thinking of buying now,is to either hold on if you can, or drive a very hard bargain.

Mike, Dunstable, England

For me these higher rates and subsequent slowdown can't come soon enough, forget the fact that I rent and it's in my own interest, it will also help those that have bought their own home on sensible borrowing levels, as higher inflation will inflate away the debt...

No the reason I am happy is It will get rid of all the property programs on TV... who will want to hear the wonderful property enhancement advice when the prices are tanking!

No more free advice, no more would be property magnets down the pub talking huge equity gain and telling me what an idiot I am for investing in cash, equities and gold... Ah what bliss!!! 5.75% here we come!

Chris K, Lingfield, Surrey

Unfortunately the UK/Ireland property market has become the most overvalued in the world. It is of great concern that the United States property market bubble burst when it was not remotely close to the overvaluation of the UK/Ireland market. The UK/Ireland market is so far out of alignment with income that when the real correction occurs, it is going to be brutal for many. Soft landings occur when inflation and time can help correct the market. The disparity is so great now, that only a major correction can result. I believe anyone consider anyone entering the market to think twice. Homeowners should have the financial resources to weather the storm that I believe is surly coming.

Nick Knight, Dublin , Ireland

Slowdown,but prices are still rising! You have an overpopulated country by 4 times,you have a an ageing population and until interest rates hit 6.5% there will only be stagnation until wage inflation catches up.There will be no crash due to demand and people always need somewhere to live.Terraced houses will be the big winners in the longterm as first time buyers and people trading down will budget for this type of property.

John Salat, Chadderton, Lancs

You cannot beat the law of Supply and demand.

If the population is increasing..as it is, faster than the housing supply then the price of housing will rise.
To stop it we have to stop net immigration. This is not so hard as so many people are emigrating.

Brian Gilbert, HAMPTON, Middx

no a fat chance of a crash...too few properties too many
people..

tim, surrey, uk

It's about time the UK house prices became realistic. What you get for your money is nothing compared to the better American market - and this IS a good time to buy in Florida if you want to live or invest in. Atlanta, GA is another under-valued area.

Pat, FL, USA/ExPat, USA FL

At last an end in sight for this looney house price boom that has, in real terms, only benefit the banks, investors, mortgage lenders and other fat cats. FTB's who chose to wait out 'till the looneys got their money and lifelong slavery deeds, will finally have a chance of not having to choose between renting or debt-'till-death.

Bring on a worldwide economic depression. Maybe even the most stupid people will learn this time around.

james clow, Huddersfield, England / West Yorkshire

Thank you for reporting a dissenting news!
Let us hope this is true and that the correction is underway

Michele, Richmond, Surrey

lets hope london prices come down real soon- prices are far too high for good earners.
i fear the large numbers of people in london will mean london will be spared the worst of any correction- that an the foreign investors

jack bear, london,