Tony Fellows,

There will be reports that contradict HSBC's findings. People have come to many different findings, due to having access to different data, and taking different factors into account.

It is not in any bank's interest to "talk down the market". Put it simply, a mortgage is a loan, secured on a property. If property prices drop, a bank has less security should the borrower default.

As for your generic supply/demand argument, you will no doubt be taking into account the huge number of DIY landlords who have jumped on the bandwagon over the last few years, and the first-time buyers "panic buying", scared they will not be able to afford in 5 years time.

And you will have no doubt realised that the 'demand' is not only based on willingness to pay, but also on availability of funds, and the banks' willingness to loan large sums (ie the credit crunch influence)

... ah, thought not. After all it's easier just to make condescending comments about the author...

Sue, Manchester,

Those people who bang on about 'house prices will not drop as demand exceeds supply' are a tad bombastic with their opinions. I would wager none of them have either studied economics or failed any exam they took in it. There is a relationship between the two demand and supply curves that is dependant upon price. If prices are high supply is higher and demand lower. If prices are low supply is lower and demand higher. Simple yet ignored by almost every person commenting on the supply demand relationship.

Coiln Grant, I think people have been talking about a possible drop in house prices since maybe 2001 when the dot com crash occurred, the only reason it didn't was because of 9/11 and the slashing of ir's. I'd have to agree with Alex Ritchie from Salisbury on that.

Gareth, London, where do you get 4.5% ir's from? Even the most optimist/foolish banker predits 2 ir cuts next year. Reality is no cuts as inflation will continue its inexorable BRIC related rise...

Neil, London, UK

George - dude, why would an investor sell at a 30% loss? All he needs to do is wait. The demand for rental property will not diminish according to the doomsters' analysis as lower prices will be matched by lower multiples so those FTBs you mention will be crying not laughing as they still will not be able to buy.

My view is that the strong rental demand we have at present will continue (I just put up the rent on one of my flats by 10%), so no BTL panic precipitating a crash. I just cannot see a 30%+ reduction (at least not in central London where I live). The lifeblood of property prices in central London is the City and it is doing extremely well, better than last year when the bonuses were at a record high.

Everyone wants to live in London and why would that change? Outside it may well be entirely different, but how does a glut of flats in Leeds affect me in N1? It doesn't.

Gareth, London,

Good to see our Canadian friends contributing. Obviously Colin's professional life must be quite short to date - a few years. Just because forecasts based on the observation that houses are overpriced have not yet been realised, it does not mean they won't.

Infinite house prices anyone? Demand exceeds supply - it's a catchy phrase and disguises all manner of lazy thinking

David, Guildford,

Well lets be clear on this ,the situation we face has been on the cards for 4/5 years now and how refreshing at last to observe the (so called experts )squirming in the realism that this almighty financial train is heading for one big crash.As one other person said earlier , yes they keep banging on about supply & demand & low unemployment & low interest rates ,but lets not forget the most important (probably) factor in this ? the billions & billions of consumer debt that quite simply didnt exist at the time of the last crash, and this will just help to finish the overinflated market off.

Doug, Cambridge, England

property slump?
good news!

riccardo, brussels,

Karen Ward is quite correct about there being no property shortage. As she points out, rents would have risen too if that were the case. I recently checked and found flat rental prices where i lived in SW London in 2001 were *exactly* the same as now. 6 years and rental prices remained the same (real price falls if you consider inflation)!

There has just been a shortage of property *to buy* as BTL investors competed with 'buy to live' purchasers. Over the next few years I expect many BTLers to bail out with such low yields. Property prices will fall significantly and rents will likely make up some of the lost ground of the last few years.

Paul, Dubai, UAE

6 months ago the papers were ull of people saying that house prices would never drop again? Where all all of these people now?

Well, they've changed tehir tone to house prices will recover. Yes - right! Believe them at your peril. I for one am waiting a few yers to buy my first home at 30-40% discount on today's value

House price crash - bring it on!

Andrew Banks, London, UK

"It was the first monthly fall since April 2006 and the sharpest such drop since August 2005" and at both of these times a spectacular house price crash was predicted as well.

The problem with the analysis of HSBC and of the IMF is that they analyse house prices the way they value equities; assuming the only reasoning behind a home's value is the ultimate expected financial return. In other words they consider things only from a buy-to-let (a market minority) perspective. For live-in home-owners the interest in the property is not determined solely by future return, as would be the case for equities. Hence a financial model does not accurately describe the value of most homes in the UK as it does not take into account, the natural desire to want to own one's home, or the fact that for a significant number of Britons (virtually everyone above the age of 40) a fall in house prices is irrelevant as they do not plan on selling up and moving to renting or a cheaper property.

Abioye A Oyetunji, London, UK

To Colin Grant,

Col, me old chum, you must be very young indeed or have worked on an amateur basis before turning professional in approx 1997. Just because you haven't seen a housing slump in 10 years doesn't mean there will never be one again. No market corrects to the mean and stays flat while earnings catch up. This never happens. One day, one way or another property prices will slow to allow earnings to catch-up. This is the time. Prices may fall 10 or 20 or 30 % but they will fall. Perception is everything and naive optimists like you will be a wee tiny minority by mid 2008 and you will have a huge choice of properties to buy with your hard-earned loonies.

Slap, Harpenden,

What does young Karen Ward of the HSBC know - when other far more experienced commentators don't agree with this finding. Methink this is again another attempt to 'talk-down' the market by the bankers - but with rampant immigration set to continue from Europe and an under-supply of housing to the tune of 200,000 per year - how can demand drop-off. How ridiculous to think that the pent up requirement for housing will just go away. As soon as interest rates are lowered again - the housing market will rebound, just as it has in Australia which is closer to our finance model than the USA is.
Karen Ward would be more accurate if she checked what the cause of the USA housing crash was - it wasn't over priced property but rather irresponsible lending to people who had no ability to repay.

Tony Fellows, London, UK

Colin Grant

So your professional working life doesn't go as far back as the early nineties then when UK house prices dropped by about 30%? Excuse me if I don't take your analysis too seriously.

Alex Ritchie, Salisbury, UK

Gareth, London. It certainly is! First time buyers will be laughing all the way to the bank to borrow 3x their income and to take their pick of properties. Property investors, however, will be crying all the way to the bankruptcy courts! Now that potential buyers have come to their senses, it doesn't matter how low rates fall, a crash/correction is inevitable. If someone tries to sell you something for twice what you think it is worth, you don't buy it - even if you have the money in your pocket or bank account. In 'normal' times (now returning) the fact that money is available doesn't inevitably mean that people will waste it on assets which are clearly overpriced.

George, Brighton, UK

The level of current employment is fairly irrelevant as far as recessions go. The housing market is the driving force behind our economy and many jobs have been created directly and indirectly by it. A fall in prices means a fall in the amount of money becoming available to the market through lending. The net effect is that when money becomes tight people stop spending, banks stop lending and interest rates rise, businesses suffer and we start the spiral downwards.

Rick, Manchester,

Interest rates at 4.5% AND a 30% fall in house prices. That is laughable.

Gareth, London,

The article states "The grim report for homeowners was released as official figures ..."

Why is it grim news for home owners? A drop in home value of 40% would be healthy as it would allow a return of first-time buyers (can you remember what they were?) and will narrow the gaps between the rungs of the property ladder.

It will also expose the fallacy that UK house prices are SOLELY dependent upon Supply vs Demand. House prices are dependent upon many factors, of which S vs D is one, but also the EASY AVAILABILITY OF CHEAP CREDIT. The latter is more important then the former. Demand is irrelevant is people can't get the credit to buy.

NickT, Andover, UK

Colin Grant, Montreal, Canada. If you are obtaining info from the media, you might very easily have been misled about the current position in the UK. We're not talking about a traditional slump or crash, but a much needed correction. The former terms will be used because the correction will be very large - a 30-50% fall in property prices. The reason is simple, the price of the average house is now almost 10x the average wage, a correction is inevitable. To give one example of the madness in the UK in recent years, near to where I live there is a large pond for sale at 300k. It was bought about 2 years ago for 400k and went back onto the market soon after. Initially for 450k, dropping very gradually in price as it has stuck for 18 months. It has no economic use, yet was probably bought because 'property' is always a good investment! If the fool who bought it ever manages to sell, s/he will have made a massive loss. At long last, the UK public are coming back to their senses.

Clint, Staffs, UK

I'm afraid HSBC are being too optimistic. They have modelled house prices based on 'future rental growth'. The reality is that there will be a rental value correction as well, as rents have been pulled up by overvalued housing. However, the correction in rents will not be as steep as that for house prices as they get back in line with each other.

This means a greater than 30% fall to fair value...and add in an overshoot for good measure and you can see where things are going.

harry e, London,

I smiled when I saw this today! I was having this very same discussion with my wife a few nights ago. The rent our son pays on a small house in Exeter is significantly lower than the interest he'd have to pay if he bought it on a 100% mortgage. In other words, the property is over-valued on a rental yield basis. If there's no prospect of capital gain to offset this, then why buy at these levels? Whether it's a 20% or 30% gap is arguable, and knowing the British public's love affair with housing, property may never reach it's true economic value....but fundamentally the HSBC is correct.

Roger J., Cardiff, Wales

to Colin Grant, Montreal, Canada

There is a demand for housing in the UK but its for affordable housing. People here are not living in the streets everyone has a roof over their head don't believe all you read about supply and demand its something that estate agents make up!
As to saying that unemployment is low its not true unemployment in the UK is very high the figures are just manipulated by this Labour Government. There are over 2 million on incapacity benefits that are not even counted. Im sorry to say but the UK is heading for one almighty housing price crash starting right now.

graham, somerset,

House prices are currently priced like shares were priced before the dot com bubble burst - they sell for a high price because someone will pay a high price.

What happens when people can no longer get a huge mortgage compared to their salary? The bubble bursts. The historical average indicates a mortgage of three times salary and the banks return to this in times of anxiety. A first time buyer earning £25,000 is likely to get a mortgage of little more than £75,000 in the very near future.

The buyers won't buy until the situation is clearer - probably after the bubble has burst and houses halve in price.

Kevin Herbert, Greater Manchester, UK

Low levels of unemployment will not save the UK housing market.A lot of jobs in the UK are low paid and will not pay a mortgage.The situation is worse than the early 90's because inflation was higher then so the mortgage debt was reduced at a faster each year.Also,anyone who lost their job got their mortgage interest paid by the tax payer.Things changed after Octeber 2nd 1995,remember.Also,there wasn't the 1.34 trillion debt mountain to deal with.

Stephen Hulton, Eure, France

small wonder the HSBC is having problems if it employs economists like this.
All my professional life people have been forecasting a slump in the UK housing market: it never happens for one simple reason. Demand exceeds supply. Of course there will be corrections but a slump of 30%???
The situation in the US is far different. There is no shortage of supply and the so called credit crunch has been caused by exraordinarily negligent lending practices the like of which have not been seen in the UK notwithstanding the liberal policies of some institutions.
It would take a substantial recession and much higher umemployment to provoke a scenario like that suggested by HSBC.
Presumably they have pulled out of the mortgage market in the light of this advice! I think not.

Colin Grant, Montreal, Canada

Woot !

Lower council-tax bills here we come !!!!

Somehow I doubt council-tax bills will be reduced in line with the price fall of house prices.

David S, manchester, uk