I have nearly finished reading Schiller's "Irrational Exuberance". I would recommend it to anyone who wishes to understand asset bubbles. The chapter on "Psychological Factors" behind bubbles, in other words, how people actually make decisions, is truly frightening.

Craig Ross, Glasgow,

I don't care if house prices go up or down.

But I do object to our entire economic policy being focused on keeping house prices high. Inflation is very bad for Britain, it's bad for travelling, it's bad for savers, who are the people we should be encouraging.

Interests rates must not be kept artificially low to keep the house prices high. We are heading for a recession, we need to encourage saving and fight inflation.

I suspect there are a lot of buy-to-let landlords in parliament who want prices to stay high. Further cuts in the interest rates would be a scandal.

Pat, London,

Anyone buying a property just now needs to think about it very very carefully. We are at the top of the cycle. We sold last year and are renting a lovely house while waiting for the decrease of house properties. There will be lots of good bargains to be had then: I remember the last crash.

Caroline, Surbiton,

Paul (Coventry) is spot on with regard to 2001 being the natural peak in house prices. I too have old newspapers featuring houses that were plainly sticking, and even 'offers invited' failed to produce a sale.
Back in the early nineties there were few BLT's. Now they are evident in every city. Once they begin to off load properties prices will start to fall big time.
It's also a sad fact that graduates, the natural first time buyers are bogged down with student debt (unless they live in Scotland), and once first time buyers desert the market prices rapidly fall. Log on to Property Snake. Reductions are as much as 40%!
That is just the beginning!

sophie, london,

A brief 'real world' tale:

My partner and live and work (hard) in London to both earn more than double the average London salary (average being £30k), so over £120k between us.

Last year we had our first child which meant we needed to move somewhere bigger. We accepted an offer of £375k for a modest two bed flat in a down-at-heel quarter of South London and set about finding a (small) house.

Despite having £150k equity and the financial profile referred to above, the cost of a 'normal' house (in the same area) was an ADDITIONAL £250k, which we felt was too scary a borrowing decison to take.

As a result we've had to rent a house as buying one was unviable, but of course it was our choice to have a kid which precipated the need to move...

That said, with the average price of a London property at TEN times local earnings, i.e. £300k, even if the average price in London property HALVED to £150k this would still be FIVE times local earnings.

Does this not infer a bubble?

fergal, London,

To add to Austin Tassletine's comments, I have a copy of the local property rag from 1 August 2001. I have no idea why I held on to it. In it there are certain houses advertised as being 'reduced' in price, indicating that this was really the natural market peak.

Of course the following month came the attack on New York, whereby the Fed and then the BoE panicked, lowered rates and encouraged the growth of the bubble. Had that panic not happened, economic growth would have returned, but in a sensible sustainable manner and property prices would not be so ridiculously high today. Ah well ...

Paul, Coventry,

This is MUCH worse than 1989 as the global financial system is in the worst crisis since the 1930’s and NOBODY knows how it will be resolved.

So much debt is secured on property. As we dive into recession repos and LTVs will soar. Bank losses will spiral out of control.

In the credit derivatives markets the critical mass has already passed and Citicorp, UBS and Barclays will probably not survive this in their present form.

These will not be nationalised - they are too big to bail - but sovereign funds will continue to use their ill gotten $’s to buy their way into the Western establishment.

In short forget your house, it's your pension your PEP and your ISA you need to worry about.

To survive this? Get into cash and/or gold and/or bunds and/or bear funds.

Happy Days.

Tony, London,

Those who say they're in it for the long-term need to realise that this could mean waiting for 20 years in their property as the market will overcorrect on the way down. That means in 10 years time property could be undervalued and unattractive as an investment, making it difficult for anyone to sell and it could take another 10 years for property to become an attractive investment again. Baby boomers will be selling up too by then so there will be a glut of property - essentially the inverse scenario to what we've recently seen.

Those who bought in 2006-7 will be waiting a very long time to achieve good prices for their property ever again. I hope they're prepared for the wait and have recession-proof jobs and plenty of savings....

MB, Edinburgh,

Though why we couldn't get this out of the pipeline earlier I don't know because now it will be a lot worse. The real time for this was 2001 when house prices then were 21% overvalued acording to Cambridge Econometrics. They should really not have artificially lowered rates then let alone in the last few months! They should be raising them now to beat inflation and get rid of the debt...

Austin Tassletine, South West, UK

But but but ...

Its different this time. Immigration, more singles, planning regulations, less land ...

La la la la de da...

Austin Tassletine, South West, UK

Yet it could have been so easily avoided had interest rated been set more correctly, particularly after 9/11 when it went down to a silly 3.5%. The MPC quite simply panicked but then it has had loads of opportunities to restore the rate back to neutraility but it failed to do so resulting in a colossal property price and consumer boom. Lessons to be learnt? No, they simply failed to learn from history...

cww, suffolk,

The wheel is turning and I for one will not be buying anytime soon.

Ad, UK,

Why all the gloom ? Anybody who kept their home through the last correction is considerably better off now. Consider your home like a long term asset - not an AIM mining stock to be flipped over 3 months. Whatever happens over the next 2-3 years house prices will still be triple what they are today in 15 years - history shows no other pattern. The only people who will hurt over the next few years from a correction are those who are forced out of their homes - or the millions selling up to flee this tax-happy stalinist government.

Jon, Cheshire,

During the last boom and bust house prices rose from 3.5 times to 5 times, before falling back to 3 times, gross salary, and only recovered to 3.5 times gross salary shortly before Brown became chancellor.

This time house prices have risen to 7 times gross salary, fuelled by buy-to-let and, in the latter stages of the boom, sub-prime lending. Over the next four or five years prices are likely to fall back again to similarly low levels as last time (ie at today's prices by about 50%)

Unlike last time, the BoE has little scope to cut the base rate because it is already fairly low and Sterling is now very weak, hence further cuts will fuel already high inflation. Added to that, the inter-bank lending rates are what will determine mortgage rates and over those the BoE has little, if any, control.

Paul, Coventry,

Prices all round are going to drop and will obviously help those who are looking to rent instead of buying. In fact renting is probably the best option for at least the next two years.

finn, Aberdeen,

Interest rate levels are only a part of the story. People have been spending 5 or 6 % more than they have been earning. Unable to increase borrowings they must now spend less, feeding unemployment. Capital has eventually to be repaid. Tomorrows money has thus been spent yesterday on things whose value does not endure. Tomorrow, inflation, unemployment , lower earnings,and higher taxes will form a downward spiral every bit as bad as previous "busts", and because, more so this time, the real value of money has been undermined by greed and trickery, probably worse. Our democracy becomes a pantomime. We are governed by those with only their own interests to the fore. We cling to the mistaken belief that there are two separate parties with our interests at heart, - they are just two sides of the same coin, wanting to subdue us, and enjoy the wealth and power that politics brings them. Greed, Vanity and Arrogance seem more in evidence than Intellect, Experience, Sincerity, maturity

nemo, nivillac, france

While your report quite rightly state's the high interest rates of 1989/90 it fails to mention that the housing market decline was driven not by interest rates as we had had high interest rate thoughout both the 1970's and 1980's but the millions of people who became unemployed. We all remember John Major telling us there was only 3 million unemployed when we knew that there was a least 5 million.

Dave, Mold, Flintshire

WElcome to meltdown - the end of the world is nigh. Enjoy it whilst it lasts

Andrew Banks, Bristol, UK

The point about the red herring is very true. Only those with a vested interest believe the housing market is in good health. The banks and building societies know what is coming, that's why lenders such as the Halifax reporting positively so as to hopefully soften the blow to them.

Richard , Nottingham, UK

Last year when *considering* joining the housing ladder, I signed up to receive emails from rightmove when any 2 bedroom properties became available in central Oxford. I had not received a single email until recently - upon where I have received 10 within the last two weeks. Noticeably these all seem to be flats and many of which have the same photo, which suggests that these sellers are people who have been burned by jumping on the buy-to-let bandwagon. Expect much more of this to unfold in the coming months. In the mean time, I'll be saving and enjoying my life so that when prices eventually settle at a sensible level, I'll be in a good position to buy a home without having to mortage myself to the hilt -thereby committing myself to a life sentence.

Damian, Oxford, UK

Primelocation's report yesterday saying that asking prices have increased in some areas by as much as 3.5% last month demonstrates how much the housing industry is in denial. The town that I am hoping to buy in has seen no property sales since November but only one house has seen a price drop. I should know, I check the housing websites each day. The house that I hope to buy has been on the market since last June but the vendor reuses to budge on her asking price.
More property is up for sale but there is a definite stalemate. I am amazed that the estate agents are still in business.

Gareth Jones, Dusseldorf, Germany

A few things have changed, houses are now seen as an "investment" rather than homes, and people now use the euphemism "housing ladder" for this virtual "escalator to wealth"
Since we are not actually creating anything the yield from the investment must come from a looser - in this instance it's the upcoming generation who will be paying (the banks) for almost all their lives for a roof.
It takes four or so man years to build a house, so the "profit" comes from the 40 years it takes to pay for it. Crazy and unsustainable.
We really do need a reversal, there will be a few who loose, banks and late "investors" and many, many who gain.
Then at some point in the future we need a planning system that actually addresses the needs of people rather than committees who just prevaricate from positions of comfort and adequacy.

Tom Taylor-Duxbury, Ludlow, UK

In my eyes a house price crash would be great for buy-to let property investors.

Investors are not speculators, they are in it for the long haul and won't be selling. So IF house prices do crash and home owners start to sell their homes, surely the demand for rental properties would increase. An increase in demand for rental properties means that rent prices will increase, just as property prices rose when the demand for them was at an all time high

Paul Simpson, Sheffield,

I remember "I should be so lucky" and the last housing crash. Yes interest rates are lower this time without the ERM but people have borrowed so much. When I said that i wouldn't borrow money unless I could still pay a mortgage fairly easily at 10% people laughed at me. House prices need to come down and the government needs to adjust stamp duty to discourage speculation in the future. I propose a sellers' tax of 5% if the house is sold within say 1 year or 2 years. This would stop the Beeny brigade.

Lesley, cambridge, UK

History may not repeat...but it rhymes.

Bruce Robertson, Brighton, UK

This is going to be the Daddy of UK house price crashes.

David S, Manchester, UK

The fact that interest rates are lower now that in 1989 is a complete red herring. People have borrowed so much more money this time round. £300k at 5% incurs the same interest as £100k at 15% and once repayment costs are considered it is actually worse.

It is pretty clear the market is now in reverse and with more rapid dissemination of prices due to the internet, I think prices will fall much faster this time round.

mike livingstone, Reigate, UK