Usual tabloid nonsense.

I have property in the US and UK and have done for over 10 years and seen it all. There was a bust in 2001 with recession fears in the UK and US, prices fell but never as hard as the 30% predictions. Prices go down, rents go up. Prices go up, rents go down.

Simple.

Matt Tingey, Leeds, England

Why the fuss over the so far modest reduction in house prices? The critical significance is that it's finally shaken everybody's faith that 'prices can only go up' - and that's the faith that's fuelled the last 10 year's of price rises. Replace this with 'they can only fall' and they will - watch.

Dean Hallett, Basingstoke, UK

Sorry, I don't buy it ! As usual, too many statistics give a very muddled message. We have heard all this before and the situation in the U.K, whilst sharing some similarities, is a far cry from that in the U.S.
Halifax's judgement is about as accurate as one can predict (5-10 % max fall) Not bad!

pedro tam, London, Uk

I blame the TV and Estate agents for inflating the house prices.
They speak only about making profits by buying, renovating and selling. I was surprised why people worry, when house prices are coming down, when they actually want price reductions in all the things. House is for living.

James, London,

While this is the best analysis I have have read on UK house prices, it does follow Anatole's trend of writing articles that his American readers would enjoy. I just wonder Anatole, was your editor sitting on your head while you wrote this. How can I trust a writer that was telling me a few months ago that the world economy was entering a golden era of low inflation and high growth, and still refuses to accept that America is in recession.

Brian James, Watford,

"Australia: Families hit by rising bankruptcies and home repossessions"...

http://tinyurl.com/4e3hsu

George Dutton, Newcastle upon Tyne, UK

This is a cyclical unwinding of debt similar to the 1930's, no amount of interest rate cutting or paper reflating (limited by the bond market) is going to make any difference. The market will unwind as it will until the debt is undone, even as the umbrellas offered by the banks in the sunshine, are taken back when it rains.

Mark, Four Crosses, Powys.

What goes up must come down is the statement to use here.

The comments here range from the short signed who think it's not possible for a fall and the intelligent ones who think this is only the beginning......

To summarise, the 'greedy' so called 'investors' will get burnt (serves them right), the 'normal' (with one property to live in)maybe okay (assuming the handling of increased bills is possible) and hopefully the 'I can't get on the ladder, let alone carry it', this may just be a chance to 'buy' themselves a roof over their heads (Great news for them!).

Interest rates must go up, not down. Is this the way we tunnel our way out of problems by lowering interest rates? In this manner we are getting people more into debt and will never rectfy the housing market at it's truest value !!! So much for 'progessive thinking'

James Coles, London, UK

"As a result, homes are much more affordable than they were 20 years ago, even though they appear to be just as expensive in relation to average incomes as they were in 1989. "

Which is the point 99.9% of commentators do not seem to understand when they talk about homes being unaffordable now - with interest rates at their current level they are pretty much as affordable than they have ever been!!

Abioye A Oyetunji, London, UK

it's a constant theme, but the market fueled by greedy speculators is a chimaera. most people bought because they needed somewhere to live and had to pay what the market was asking. no more and no less.

(austin t - I think you're missing the point. it's not that house prices won't fall, but that those who are able to take advantage of this will be cash buyers, not first-time buyers previously priced out of the market. and those who lose out will not be greedy speculators, but unfortunate owner-occupiers who stretched themselves to put a needed roof over their heads and have now lost their jobs in a poor economy.)

jem, london, uk

Actually, the decline is already 15% in certain areas eg parts of the North-East, according to Land Registry information available.

Phil, Bishop's Stortford,

It is different this time. Really, it is! But it has nothing to do with the price of houses and, like the credit boom itself, everything to do with the price of debt.

Something that's quite remarkable about the current state of interest rates and inflation, and I think it hasn't quite been grasped yet, is that UK money market rates seem to have decoupled from the official rate; the BoE cut rates as everyone expected but, even today, a number of lenders have kept raising theirs.

In other words policy makers appear to have lost control of the price of money. This is not supposed to happen and it's something that I have never seen before. Older hands may be able to reassure me. But I think it is, at root, yet another outcome of Gordon Brown's foolish decision to set the MPC an inflation target that bears little relation to reality, a mistake whose potential consequences all too few commented upon at the time.

Martin, London, UK

Good article.
Two points:
1. The perennial argument about the supply of real estate product in the UK in terms of dampening corrections does not hold. If it did the market would suffer much more shallow troughs compared to the US. The opposite is true.

2. If we compare the ratio today with the late eighties when the last correcction was in full swing in the US, we should remember that the household outlays today areproportionately half of the outlays back then, since mortgage rates are much lower today. That should dampen the rate of the fall in te US.

Nicholas, Greenwich, Connecticut

I liken the UK property boom to the dot.com boom a few years back. In North America, the realisation that demographics (aging boomers with falling birthrates) were going to lead to a collapse in pension funds--especially to sustain overly-consumerist lifestyles they already could not afford--caused trillions of dollars to be thrown into the stock markets and at IT-kids looking for dosh for a lot of poorly run businesses. Similar circumstances, coupled with taxbreaks for buy-to-let, have led a lot of otherwise sensisble folks in the UK to believe that property was the way to pension salvation. And, like the stock markets back then, the values could only go up-up-up.

The stock market bubble burst. The UK property bubble will also burst, and quite spectaculary, as folks living from virtual equity and over-inflated prices (greed and some really questionable property development pricing and financing tactics yet to fully come to light) have to pay back mortgages they cannot sustain.

K Edwards, London, UK

The analysis has two serious flaws.
It should be based on 'affordability' , the multiple of house price and prevailing interest rate, which govern monthly repayments. We live in a world of low interest rates now and for the foreseeable future, compared with a large part of the period reviewed.
It should be based on household income, not personal income. Over the last twenty five years there has been a huge shift in the attitude of young people to how long a young mum would spend away from the world of work while having children and bringing up a young family. Formerly, a break of several or even ten years was the norm. Now this figure is very much lower. One can argue about which is the cause and which is the effect, but this substantially changes the household income and financial outlook for many in the critical early years of mortgage repayment, hence raises their affordability ceiling, thus putting upward pressure on prices - a force which is relatively new, but here to stay.

Geoff Foster, Welwyn, UK

God Bless Mrs Thatcher We bought our council house for £20K in 1992 and sold for £147k last October we now live in a park home and have lots of money in the bank .

Susan Lerigo, Richmond, United Kingdom

This article is very near the truth. If things really get out of hand a 30% fall is a real possibility.
In my view yeaterday I mentioned that the MLR would come down and lending rates would rise. People can't inderstand that lending is now geared to LIBOR and MLR is now of limited consequence.
Those living in their "Ivory Towers" in London will soon feel the domino effect of falls in less expensive properties.
The May elections will be very revealing . Labour losses will be unbelieveable. Will this Goverment last I ask myself

V Cooper, Yeovil, UK

Sorry, Anatole, but far too simplistic this time! You make too many comparisons with the States and we are not the States.
We are a small over populated island with very different circumstances.
The government and BoE will do everything to prevent a big fall in house prices and continue to keep them artificially propped up ( albeit at the expense of sterling, inflation, pensioners and the like) We are a home owning nation and the government don't want us to lose any of the feel good factor that they have artificially created over the past few years,especially as home owning is concerned, as we are their voters!! Give them SOME credit!

The BoE are not as independant from the government as one might like to think!! At the end of the day they will tow the line.

Property prices are only falling in some areas. In others, like Central London etc ., they are rising strongly depending on the sort of property you are looking for.

ped, London, UK

All the coverage in the news is certainly going to add fuel to the flames, absolutely fab for people like me trying to get onto the property ladder, ok for people happy in their family homes, they don't need to sell.

As for these greedy developers pushing prices up in the first place, they'll be hit hardest.

Sit tight and enjoy the ride!!!

kimberly, Oxford, UK

Hats off to Tom Franklin for telling it like it is. What’s the fuss all about?

If you own a house and it was ‘worth’, say £300,000 and it’s now ‘worth’ 10% less than (£270,000) that and you now want to move to a house that was ‘worth’ £350,000 and that is now ‘worth’ £315,000, the proportion by which you are upgrading is the same.

If you had overstretched yourself and borrowed too much and now can’t get a mortgage on the extra £45,000 – tough. You can’t move. Your problem.

I say ‘worth’ in inverted commas because it only becomes real money if you sell up and cash in the equity to emigrate, rent, or just go on a damn good holiday. Most of us are not in that position. Deal with it. Stay put or only borrow what you can afford to pay back. If you've over-extended youself -it's time to cut back. Downsize, flog the 4x4, live within your means.

Quite simple really.

Mike, Tunbridge Wells, UK

For those of us waiting to get in the ladder and sitting it out, a downturn can only be a good thing...

Lewis, Bournemouth, Great Britain

Everything in the UK is priced at least 50% above its actual inherent value, houses included, so to get the economy back to a situation of normality and efficiency, we need to cut the price of everything in half. Harsh but true. And after the initial adjustment shock, we'll be better off with an economy that's based on realistic prices. People need to stop living in a consumerist fantasy where they think they can buy anything even when they're already deeply in debt. Brits also need to adjust their attitude to money. In Asia, most people save part of their salaries every month, but the word 'saving' has become anathema in a show-off, live-for-today society like the UK, which is in for a huge debt shock which will make the housing price shock pale in comparison. Philippines: average per-capita income: US$300 per month, ave. savings US$50 or more per month; UK: ave. per-capita income: US$4000/month, ave. dissavings US$500+/month; Brits are going further into debt by £250/month on average

ex-pat Brit, Manila, Philippines

Where did you hide your graph these last years?
When it comes to prices and long term determinants of value
is not Marx's method the most relavant, -that the value of any commodity is determined by the labour time required to produce it? And it is around this value that prices fluctuate.

Heiko Khoo, London, UK

I predict an upturn in sales of insulated garden sheds.

Martin , Herts,

Bring on the housing crash. Cant wait to get my next house at a bargain!

Steve, London,

Why is a 2.5% move such big news? Price have regularly done similar sized up side moves in the past 5 years and it has hardly been big news.

Prices may fluctuate slightly, but again surely everyone knows that. Prices can go up as well as down. Prices may have overheated in the past few years and we may have a few years where growth slows or even prices drop a bit. It is better that houses come back into line slowly rather than have very large rises and falls.

Roger, london,

Please, please, please can the media just stop sensationalising every downward movement in the housing market? Are we in the midst of an unemployment crisis? No! Do we have 15% interest rates on our mortgages? No! All that's going on at the moment is a bunch of fat-cat media moguls cashing in on the fact that everybody reads/watches/listens when it's something about a housing market crash. A few nervous sellers get panicky when their house doesn't sell in the first few weeks so they slash the asking price, then other sellers have to follow suit to remain competitive, and before we know it all house prices are dropping. This is a self fulfilling prophecy that will only benefit those rich enough to cash in. For those of you hailing a price crash as a benefit to first time buyers - look who the biggest winners were last time there was a big drop in house prices. Landlords. Does this country really need more rich landlords and poor tennants? Didn't think so.

Leanne Carrod, Bracknell, UK

Thatchers Idea of selling off council houses was a stupid idea whish hasn't helped things today.Politicians have a lot to answer for

C Smith, Burlington, Canada

Estate agents must be in denial or something because
here we've had big increases here.

30% makes sense to me, will it ever happen though ?

Just a flattening out over 10 yrs more like, I think.

Remember, Estae agents have made big profits over
the last 15 years, they have big accounts to fall back on.

I think this has been a better article than listening to the
biggoted think that Paxman has put together, they made
poor Ken Clarke look like a, " commy ".

M walker, Nr bromsgrove, worcs

Yes house prices in the UK will fall 30 % maybe more.
We have been brainwashed to believe that they can only go up or stop at these levels for a while before moving up again. Well I am afraid thats not the case now we have the big downside and its only how far down its going to go is the grey area I predict 35% and I have some expert knowledge , I have been in the City Trading for the last 30 years and we are the people who really know whats going on . I sold my 3 properties last year and went into rented accomodation because at the end of this year I know that I will be able to buy back my properties for 20/30% cheaper an that will make me a tidy profit of 250,000 ......... So Take heed in what i say , I you are a buyer dont buy now if you are a seller take the offer even if its 20 % lower than asking price . See you all in september /october and then I can say told you so

Ally Mac, london, england

I think Mr Cormick has been exposed to Argentinian economic theory too long too have such an hilarious opinion on the greater British economy.

Chris, Aberdeen, UK

I have no idea what direction UK house prices will go, all markets are local and what happens to prices in the USA does not automatically translate to prices across the Atlantic. However, the financial systems ARE linked. The current problem is the so-called credit crisis. US banks lost money on sub-prime loans and now this contagion has spread to other parts of the financial system such as municipal bonds and interbank loans. Banks have lost trust in each other and because of their losses, they are having to rebuild their capital bases. This means that they are making loans more carefully and increasing collateral requirements. For the home buyer this means no more 100% LTV loans, and higher interest rates. In the US, despite the Fed Funds rate being lowered to 2%, rate for mortgages have gone up. If prospective homebuyers cannot borrow, they cannot buy. If demand is reduced, supply is de-facto increased and at a certain point this will result in falling prices. We are probably there

peter, hampton, Virginia

Oh come on and get it together! This is not a disaster, this is just the natural order of things.

Is anyone stupid enough to have believed that the bubble would not burst? Is there anyone who does not realise that the longer the bubble rose, the larger the fall?

The prices are, theoretically, going to end up as they were in 2004. This is not a bad investment for anyone who bought in 2003, or earlier. If you bought after 2004, all you have to do is wait, although you may have to wait for a quite a while.

We have an odd system in the U.K. if your house is your principal residence, you can take the profit, pay no tax and walk away. This is a technical fact, not an act of charity. Therefore, if you misjudge the market, you must accept it for what it s and pay your mortgage. It will work out in the end. If you have over-mortgaged yourself, you have knowingly taken out a loan that you can't afford - beware the consequences! It can be tough, but this is how it is.

Marc, Paris, France

According to mouseprice.com average house price increases around here have been 15.1% per year for the past five years. Now that hasn't been reflected by an equivalent improvement in the economy over the same period. So far as I can see it's been driven by two things only - speculation/greed and banks falling over each other to lend unrealistic amounts of money. Now the conditions are completely reversed and of course the more prices fall the more equity lenders will insist on before they lend. It doesn't matter what you think a house is worth. If you can't borrow the money then you can't buy it. As far as I can see it's a one way bet.

Sam, Lyndhurst,

Why is it a disaster? It is wonderful. More people can afford homes, which is the way it should be. Stability - STABILITY - it best for housing such that the money that someone makes form their home is base don paying off the mortgage, not betting on the come. We should not care if people overpaid and now have to just keep their houses and continue to pay them off. They will be fine in twenty years.

robert, boston, ma usa

I dont know much about the financial market or economics, but would the falling house prices mean good news for first-time buyers?

Hidayat, Birmingham, UK

Jonathan, London writes:-

"..the relationship between the average cost of servicing a mortgage and house prices."
- but are not income growth and interest rates, and therefore mortage costs, highly correlated?

"Once credit pressures in the wholesale money markets ease (this is already happening), "
I am afraid not. Conditions are worsening, even the BoE agrees. Also, as house prices fall, bank asset quality will deteriorate and make matters worse causing a downward sprial.

Richard, London,

We all need a roof over our heads. If we cannot buy,we must rent. Who owns or buys the homes we rent? - wealthy landlords, growing fatter and richer as they snap up cheaper properties to rent back to us.

Jarvis Dee, Wedmore, UK

I agree with Dominic. There is a construction cost for a new house; materials, labour and a fair profit for the suppliers. Anything more than that is land / scarcity value (you can think of it as both).

The demand for homes has been allowed to grow through immigration and family breakup faster than the supply has been allowed to grow by the planning system, deliberately in my view. A lot of development in Manchester has been small flats; we lived in one but had to move out when we had a second child. So people use all their money to chase the best home they can get from a restricted supply. House prices will only fall when either the supply increases, the demand diminishes, or ability to pay mortgages falls.

Cheshire Structure Plan 1st principle: "Restraining total house-building in Cheshire and thus net migration out from Merseyside, Greater Manchester and the Potteries in
support of urban regeneration in those conurbations"

= we will tell you where you can afford to live

Lux Aeterna, MANCHESTER,

You can't compare the US and the UK housing markets. This country is huge, and there are regions where housing has scarcely fallen in value-- as for example, around suburban Washington DC, where in certain places housing prices are either holding steady or rising. Then there are other regions where house values have taken a big dive in and around major cities. Furthermore, this country is still experiencing a population drift to the "Sunbelt" states-- California, Arizona, Nevada, New Mexico, Texas, Florida, Alabama, Georgia, and North and South Carolinas. In Tennessee, which is now attractive for bargain hunters, the population drift is causing real estate values to rise. Ditto for Kentucky. So, there is a further cause for house devaluaton in the cold northeast besides the oversupply of homes, and the house-flipping fad, and the indiscriminate granting of Adjustable Rate Mortgages to people who never should have been buying houses in the first place.

MJ Hoeber, Miami, Florida USA

I was mildly concerned until I read this. Now I shall sleep easy.
If you honestly think that average pay has been rising at 5% a year you must be on boot polish.

Furriskey, Singapore,

If house prices drop the only winners will be cashed up buyers. The reason house prices may drop is due to credit constraints, which will apply to both FTB and current owners. What will be truly gutting for FTB is when prices drop to a level they currently believe they can afford, it is more than likely they will not be able to get the credit from the banks to buy them. Its a cruel world isnt it...

Peter, Stockholm, Sweden

Who is this man Simon Duffy ( see 1st comment ) to say the economy has been mismanaged for the last ten years? In 1997 we were about the eleventh most successful economy in the world; now, depending on how you look at it, we´re the first - by that I mean highest average income and greatest distribution of wealth of all the economies. That´s not mismanagement - that´s brilliance.

jim cormick, buenos aires, argentina

Two words: so what?

Homeowners took loans, with interest, to make a purchase from which they benefitted from investment increases, had they exited at the peak. They chose to stay with them, and are now riding the falls.

So what? Why do we need to "stablise" the economy of reassure just this section of the population? Does the bank intervene when rental prices go through the roof? Or on all the other things that the rest of us lose money on?

No? Why the bloody precious homeowner then? Why does everyone fall over themselves backwards to protect these investors from the downside of their investment? Why the discrimination and bias? No other investor group gets so much molly coddling, government intervention, handouts, help etc.

You took your investment decision. Now damn well live with it and shut the hell up.

Tom Franklin, London, UK

To Marc of Ballymena.

I work for a UK Home Insurance company and agree that house prices in Northern Ireland ARE astronomical. Is this the reason many Irish are buying properties in the North East of England, i.e. Newcastle-Upon-Tyne, as Buy-To-Let?

Gary, Birmingham, West Midlands

Yet another article sensationalising the house price disaster that's "guaranteed" to happen. If the press didn't stir up the issue as much as they have done then people wouldn't be in a state of panic.
Let's face it, it's better for the media to have a house price crash than not to have one isn't it?
Sells papers, gains viewers etc. etc.
The trouble is, until another big news story comes along, you'll all just keep plugging away to keep the panic stakes high.
Until that is, you realise that you guys have mortgages too, so you're sticking it to yourselves as well.
Sweet dreams.

Wayne, Surrey,

Jonathan is critical of past predictions but if such prediction was easy we’ve all find it very easy to plan finances.

It’s perfectly fair to observe that prices are above their long term average and should revert back to their mean but if you accept that certain markets are complex adaptive systems there is no shame in being wrong as they can remain irrationally priced far longer than one might first imagine.

But remember things that can’t continue, eventually don’t continue. Relatively speaking House prices are likely to fall it’s just that no-one knows when.

Andrew Sawrey, Askam-in-Furness, Cumbria

To Andy Whittaker, Near Harlech, UK

It might be "Revelation" and not "Revelations", but it is "academic" and not "acedemic".

Peter, London,

with reference to Michael Clarkes comment, i would like to suggest that it is not The Agents who call the prices, but the Surveyors, who value the property on behalf of the mortgage lender. The surveyors are regulated, and have to show comparable evidence for their valuations, if they cant they can kick them back, or downvalue a property.

We can all go out and witch hunt estate agents, and pin some blame somewhere, everyone who owns a home has an over inflated idea of its worth, best in the street, biggest plot, built by the builder for his daughter etc etc etc.

Reckless lending, increased interest rates and a sub-prime splurge has caused the problems we are in.

Rebecca, London, London

I think the question of «how low prices can drop» come to to the anwser to «how fast can the investors find another market to shovel their money and hopes into?».

IF the speculators decide to invest in, gold, silver or any other commodity, or stamps or Staffordshire dogs.. in that case the same money that was pored into housing will flow out and the house-prices will be back to their fundamentals.

IF a cut in interest rates and the hopes of the investors manage to invert the drop, then the market will be further stretched, for some time.

In any case, prices have a lot to drop before the arguments of Architect Michael Moran, valid as they are, become relevant. «Severe planning restrictions» and «zero carbon surplus costs» will only become relevant IF and WHEN prices close in to costs. That's not likely to even in the event of a 50% drop.

Rui, Lisbon,

There is an unhealthy circle of media sensationalism with headlines like "soaring", "crash" or "disaster" based on shoddy interpretation of statistical data, both fuelling and fuelled by peoples' obsession with the value of their house.

We seem to have an irrational belief that rising prices are good for us because we are "wealthier". However you only realise that "wealth" when they sell, and that is usually to buy another house - which has obviously gone up in price too! Given that most people trade up in value when they buy and sell houses, rising prices increase the differential between what you sell and what you want to buy, so making it harder.

The best outcome would be a steady and boring housing market in which prices don't vary much, just drift up gently with inflation. People would buy property primarily to give them somewhere to live, not as a way to make "easy money", and the media would lose interest. How do we achieve that?

Gordon, Aberdeen, UK

Would it be too much to hope that a simple law, preventing anyone, or any couple, from borrowing more than 3 times their annual income (which would be carefully investigated) for a mortgage - as used to be the case - would stop the housing insanity? Of course it would have to be brought in gradually.

But a return to any system of limiting people's infinity capacity for getting into unrepayable debt would bring the whole global financial & economic system crashing down. Which it will do eventually as ever-increasing population & unsustainable consumer demand outstrip the world's resources.

Dave, Wrexham,

Based on the area where I live, the economy was stronger in 1995, when house prices were rock-bottom, than it is today. Since three of the four major vehicle manufacuring firms have closed - and with them all their support industries - in the past five years, there is no money to support high house prices. As the local economy has been in decline for the past five years, house prices should have fallen a lot sooner and would have done were it not for too much credit being available. A 30% fall therefore seems a fairly conservative estimate.

Paul, Coventry,

Can we please stop trying to liken this economic situation to the situation in the late 80's early 90's. The economic conditions are completly different. I have been in property since 1989 & as Paul quite rightly points out the abolition of joint MIRAS in Aug 88 caused a huge spike in the market. Thereafter further payment shocks like the effects of the joining the ERM, the final abolition of MIRAS & the popularity of the virtually criminal 'defered' mortgage products fueled a 15% drop in property prices &, more importantly, a lack of confidence in the market. This is just another attempt by a journalist to simplify & pigeon hole the situation. The current crisis is a combination of factors outside the control of either the governemnt or financial regulators. Unfortunately due to the mismanagement of the economy over the last 10 years, we have little or no ability to protect ourselves from the worst of the coming storm. A high tax burden & huge PSBR have made sure of that.

Simon Duffy, London,

Following on from Dominic:

There's so much less scope for adding to the housing stock in the UK. The normal supply/demand pressures will have the effect of decreasing the overall impact Anatole is prediciting. I don't think the UK won't suffer, just not as much as the US.
Also, the US issue has been irresponable lending in the prime as well as sub-prine markets. The UK problem is more down to the greedy investment in the US

Guy Adams, Keighley, West Yorks

Let's just wait and see. Oh yes, and smile just a wee bit : )))

Shocker, cambridge,

It's about time property prices became realistic again - GREED, GREED GREED. I hope there are a number of people who end up with egg on their faces.

Cole Branel, Salisbury, Wiltshire

It's a good story, but it's not absolute house prices that should be used but monthly replayments i.e. affordability
Also for a more realistic/sophisticated analyis Anatole Kaletsky should take 4 X Annual Earnings vs House prices which is a measure of long term ability of buyers to afford houses.

Daniel Green, London, UK

Interesting chart, but does not factor in enough information.

The 1988 boom in prices was dramatically stoked by the pre-announced ending of double Miras. It was a short lived spike reversed by a rapid rise to 15% interest rates, held for a year then slowly falling. The trend to fall was reinforced by a massive recession caused by those high interest rates, and a more than doubling of unemployment.

The prolonged dip from 93 to 99 resulted from the recovery in earnings running ahead of increases in prices and the fall in interest rates back to normal levels, and the fall in unemployment.

The 10 year rising trend reflected the long expansion in the economy, the limitations on supply, the increase in the labour force and population, and the lower interest rates of the past 10-15 years.

We don't have a recession (yet), 15% interest rates, or an extra two million people being thrown out of work.

The main thing likely to cause a drop in prices is panic at charts like that.

Peter Dunford, Dorchester,

Move to Northern Ireland folks where property prices are now obscene.

The peave dividend has been well and truly claimed by the property developers & buy-to-leters.

The low income families remain suppressed, although this time its from an inability to get onto this ladder you all talk about, rather than from knee cappings and punishment beatings.

You can't even build in the country anymore because of our new Assembly's planning laws.

Think I'll buy me a boat, and just worry about pirates. At least you can see them coming!

Marc, Ballymena,

What people seem to have forgotten (perhaps you're all too young) is that it was the demise of MIRAS under Nigel Lawson which triggered a very short term very steep rise rise in house prices in '88. MIRAS wasn't there (post August '88) when interest rates went through the roof. Mortgage rates were actually 12%'ish. I was paying them!

Paul , Wimborne,

I was mildly concerned until I read this. Now I shall sleep easy.
If you honestly think that average pay has been rising at 5% a year you must be on boot polish.

Furriskey, Singapore,

Napoleon once (allegedly) called the English "a nation of shopkeepers". I would say: today they are a nation of property speculators.

What saddens me is the complete lack of solidarity and long-term outlook by media pundits, politicians and indeed ordinary people who fail to realise how damaging both socially and economically the housing bubble is (has been?). Since when is inflation a good thing?

Noone would complain if the price of cars fell, so why are houses any different? "Ah but consumer confidence would dip and the economy would suffer and we'd all lose our jobs" I hear you say. Perhaps, but do we really want an economy so hopelessly dependant on house prices and addicted to cheap credit? Do we want the price of our economic "stability" to be that an entire generation can't afford to buy a HOME (remember that word) for their families? Yes comes the answer, from those already on the "ladder". Cause... I'm allright Jack.

George, London, UK

This crisis is not primarily about house prices. They are a side issue, albeit an important one. It is about a greedy and irresponsible financial industry which has fiddled the monetary system to produce new money out of thin air-for which they needed to find a market . They were aided and abetted by Western Governments who saw it as a way of creating the illusion of wealth plus a feel good factor, so they could remain in power. They didn't care what happened when they had gone. People will soon have to start living within their means, repaying the capital element of their borrowings and saving for a pension. This will drain at least than 20% pa from the domestic economy -result:-disaster. This is what will determine house prices in a future which will be very different from the past represented by your graphs ! We will be lucky if Inflation and war do not soon change the world we know , and that our present concerns over house prices are simply forgotten

nemo, nivillac, france

How is it mean to want to buy a house you can afford in your own country ?

Benzo, Nr Chelmsford,

Basic Economics - Demand & Supply - you cannot accurately compare the US vs the UK due to supply factors. Supply of housing in the UK is severly restricted in comparison to the US.... House prices will slide this year - I give you that - but I dont think demand will drop enough to overcome dramatically the limited supply in the uk (we are after all not building any more land are we !!)...the slide will probably be far less than expected in this doomsday piece...

All we need to do is get rid of Gordon Brown now...if we can ease the tax burden in this economy that would help as well....

JC, London,

"...if you think a cheap house is about to fall into your lap at someone else's expense, you are deluded and mean.

jem, london, uk...2

Why Jem? It happened in 1989-1995/6 didn't it? What is so mean (or deluded) about making the best investment decision at the right time? This crash has been on the cards for a very long time and anybody could have seen it coming (including Buy to Letters) but they carried on regardless. In view of the comments by The Cambridge Econometrics Centre in May 2001 in this paper that houses were 21% overvalued then, then what about the inflation between 2001 -2004? Could we see further falls? Anatole I would like your views.

Austin Tassletine, South West, UK

What's not mentioned in this article is the effect of reduced Loan to Valuations provided by the lenders.
This is what has been largely responsible for the boom in the first place.
We have seen the 125% mortgages withdrawn and the last of the 100% mortgages have now gone.

As lenders see prices falling they will withdraw the larger LTV products.

Most now offer 90% LTV.
Reducing this figure to 80% LTV effectively more than halves the funding available.

for example someone with a £50K deposit and 90% LTV can borrow £450k (assuming they can keep up with repayments)

A £50K deposit at 80% LTV will only make £200k available to the borrower.

The house purchase budget has been reduced by 50%.

Watch lenders reducing Loan to Valuation ratios over the next few months as they factore in anticipated house price falls.

Mark Jones, Marlow, Bucks

Well, every problem is an opportunity. I'm certainly going to start hanging around auctions of repossessed property with my cheque book (as is my mate Henry in California).

A more useful graph, I think would cover more than two cycles and might show cost of home ownership as a fraction of income. (Thus taking account of the difference between high and low interest rate regimes) I gather here it's about 40%, whereas in Russia people apparently don't have a problem with up to 60%.

Ian Kemmish, Biggleswade, UK

Mike, Property is not a commodity, its an asset

tom, Ldn, UK

This article has out done the house price doomster, Roger Bootle.

Why didn't The Times warn us all in 2004?

Costas, Cyprus,

Housing price inflation occurred because there was plenty of money. Now there is no money. Housing prices will fall. Interest rates will also fall. The pound will fall. Because this is an import economy, inflation will increase and slowly catch up with previous housing inflation.

In the initial phases government will deny inflation is occurring. Statistics will be warped with pious authority.

This will be a long, long process. Contrary to the PM and Chancellor's position, Britain is unique in how badly positioned it is to face a recessionary trend - and a bloated bureaucracy expects the public to pay its pension.

tim holden, budleigh salterton,

If House prices fell 60% in London and the South East of UK,they would still be significantly higher on a like for like basis than those of us in the impoverished northlands!
The great hikes in the property market in this country have been partly fuelled by the success of the City of London.A lot of that leveraging up is now about to de-leverage,as has recently happened to shares in some of our leading companies.

Greg Lord, Blackpool, Lancashire

This really is starting to become tedious, many, those I'd guess, with low mortgages or living in rented accommodation seem to be rather enjoying talk of a supposed collapse in the housing market. To the pessimists I say this - go and relax with a nice glass of wine. I'm off to live in France.

Richard Davies, Marlborough, Wiltshire

Surely if there is a 30% drop as Mr Kaletsky leads us to believe then the properties at the very lowest rung on the property ladder will then be within the grasp of persons who at the moment are unable to climb on to that ladder and there will be such a rush,demand exceeding supply,and the values at that end of the market will then start escalating again and the effect will be found all the way back up to the top again?

alan routledge, chester, england

Anatole has finally seen the light........not a "disaster" or a "long-dreaded correction" but a glimmer of hope for millions of young families needing to trade up and for millions of young people (and their parents) trying to be FTBs

Davie P, London,

A different conlusion - the excellent historical pricing chart for the UK's real estate (sorry UK's economy) shows the grasping greed and stupidity of founding an economy upon falsely inflated house prices.

Increased prices of UK's housing bear little or no relation to market supply & demand or even land & construction costs.

The price increase is solely related to the greedy, gasping Britons.

Long may you suffer in the hope that the beer drinking population starts to appreciate that the more house prices are driven up, the less competitive is the country in competing with regional neighbours - let alone the hard driving economies of the developing countries of China, India & Central Europe..

Richard, Bucharest,

If house prices had been reflected in the inflation figures as opposed to being artificially deflated for political reasons then the higher interest rates required to control inflation would of also controlled the credit boom thus no cheap credit.
Gordon & Co are culpable for this big mess what with their profligate spending,charitable gold reserve sales and such statements as we "have eliminated the cycle of boom & bust"
The futures bleak as they never saved a penny for a rainy day and the two incumbents at Numbers 10 & 11 Downing street have there heads firmly positioned in the sand!!

andy murray, reading, uk

Property markets always overshoot - UK houses are currently overvalued but will in the fullness of time be undervalued.

To those who blame the planning system, planning decisions dealing with new housing are invariably made by planning committees made up of locally elected councillors, unless refusals are appealed, whereupon they are decided on in terms of government policy - again determined by your elected representatives. Planning is always and everywhere political.

Arnold Ward, Weybridge, Surrey, UK

Last year, it was easy to see why upmarket houses lept ahead in value - it was the easy finance provided by the agents themselves, through their financial services affiliates. This meant that the market kept moving no matter what price was put on the property.

michael clarke, london, uk

This seems very simplistic for the work of Mr Kaletsky.

In considering the ratio of prices to incomes, he should try to consider the impact of the undersupply - the effect has been to exclude those on lower incomes (a whole other issue about Government failure to plan for the availability of building land - instead of tinkering with subsidies for selected "key" workers).

In order to consider the sustainability of these prices, he needs data on the average income of homeowners (only) to compare over time.

Conditions are different to the US in that there has been much less "sub-prime" and therefore the pressures on owners are less acute.

Conditions are also different to the early 90s in that there has not been a very short, very hot period as there was in the run up to abolition of dual MIRAS in 1988.

Prices may be close to flat for an extended period, and therefore the price/income ratio could fall substantially over time. But there is no argument here for a steep fall.

Graham Scrimgeour, Edinburgh, Scotland

The remit of the BofE should be to guard against inflation not prop up the property market. For too long the sole barometer of our economy has been house prices - how absurd. Why not GDP / debt / value of stirling / etc? Because we have a short term economy based upon equity withdrawal against house prices. How can an economy like that keep going indefinitely? Why not ease planning restrictions, stop land-banking and supply restictions on new homes, and we'll have more money to spend on goods and maybe have a real economy!

Richard, Guildford, Surrey

Tony from Maidstone - interesting comment re: MIRAS.
MIRAS was 10% relief on mortage interest payments.It seems to me that the relief would have had a large offsetting effect on the higher interest mortgage payments that were made in the 80s, i.e. if you had a 30k home, you would pay net 27k.

There is considerable noise made about how much higher interest rates were in the 80s, but with an offsetting facility like MIRAS, the effect of higher rates would have been subdued. If you could plot the beneficial effect MIRAS had on the average mortgage in the 80s and 90s, then maybe a more relevant 'real'rate of interest paid on a mortgage would be comparable with today.

Steve, London,

"Serves them right and makes houses affordable again."

For people like me, who bought with around 90% LTV (a small apartment) for living, not rental or capital gains, a 30% reduction will put me into negative equity. Although this will have no effect on me immediately, it means that I wouldn't be able to sell my property for some years to come - or at least until the housing market has inflated again enough for any sale to cover my outstanding loan. People like me (there are more of us than there are buy-to-let landlords) will effectively be out of the housing market.

When you add in the effects of the increasing costs of selling (agents, stamp duty, sellers packs), it's easy to see that any notional fall in house prices will be offset by a reduction in sale stock. Therefore I don't expect as large a correction as 30%, because lack of supply will offset any price falls.

Robert Laundon, Cambridge, Cambridgeshire

Isn't it pretty pointless asking an estate agent or a mortgage company how the market is doing? What do you expect other than a variation of 'fine' - such as 'less than fine, but fine'. Home owners = voters=newspaper readers=property ads=loads of money. That Brown can blithely tell us house price inflation is 200% so a single figure decline is nowt to worry about, and not a word about the obscenity of this roaring inflation and that from a socialist PM and a thrifty Scot to boot - beggar's belief. Just tells me as an European how cockeyed the British economy is.

John Walter, Bonn, Germany

Tony Lewis, indeed. Mortgage rates the last time were not at 15% for long, more like 12%. MIRAS applied on the first GBP 30k or so, effectively taking the mortgage rate to (I think) around 8 or 9% on that portion.

Back then, the typical first time buyer's house cost not a lot more than 30k, so you had a large part of the mortgage at a rate not much higher than today's typical mortgage rate (say 6.5%).

It is not (that) different this time.

Keeley Stitty, Tunbridge Wells,

Peter, Birmingham - anyone who wishes for a housing crash is being naive and simplistic. A severe drop in house prices is not comparable to finding big discounts on holidays, or 2 for 1 deals on tins of tuna. It will be partnered with a fundamental weakening of the economy. If that happens you may not have a job from which to earn the money needed for the home you desire.

Ecgbert, Sheffield,

Perhaps someone would like to tell me why a 30%drop in house prices is such a disaster and why so many people would declare themselves bankrupt? It's only a problem if you can't keep up with your payments (or refuse to), Negative equity is only a problem is you wish to move or can't afford the payments. If you can't afford to move house because of negative equity, then don't. It would seem likely, however, to put a lot of estate agnets and possibly solicitors out of business due to stagnation in the housing market. The '88 bubble appears to me to have been caused by very high interest rates, not the actual house values. Interest rates sky-rocketed, people couldn't afford the payments and handed the keys over to the mortgagers, prices plummeted because of over supply and those who wanted buy couldn't afford payments

Paul , Wimborne,

I dont know why people always seem to turn on btl investors. They are the ones that bothered to save and buy and good luck to them. There are plenty of renters who dont want to buy and only want to rent. Its not as if the whole country is owned by btl investors.

Jealousy springs to mind.

Mick, Gold Coast, Australia

And back to the impact of falling house prices on the banks.

If house prices rise to infinity, it only takes one default to bankrupt a bank. House prices have roughly trebled in value in the last decade so any correction in asset prices will be very painful for the banks...even in the happy event if there is no rise from current levels of default.

That fact alone will make lenders very cautious indeed, hastening asset falls by their reluctance to lend...and so on.

harry e, London,

The scandal of higher fuel prices is being encouraged by the oil companies (more diesel cars sold=less gallons) and ignored by the Government (higher prices=more tax)

The diesel differential (2p/litre 04/07) is now as much as 12p (Merseyside, 04/08)

Can anyone explain why?

Alan Riley, Aberdeenshire,

The BOE blew it last year.Unlike the ECB and FED,the BOE sat on its hands as it is led by an ex-teacher who has never had a real job,and who was more interested in punishing the "bad boys" in the banking class,rather than in protecting the banking system and the economy.So we had the spectacle of the only bank run in the modern world at Northern Rock.And now we are sliding into recession and uneployment all because the leaders at the BOE still don't get it.
As the Americans say,"it's the economy,stupid!"
But the BOE is incredibly dense,so house prices will slide,lending by banks to individuals and companies is dropping at an accelerating pace,companies have put aside plans to expand;employment is being cut back,economic growth is faltering and....when Labour has to go to the polls it will be in the middle of an economic recession.
Guess who wins the next election?

C.Elder, Paris, France

"A 30% fall in house prices would mean huge numbers of people declaring themselves bankrupt, which in turn would cause the High St banks to become insolvent.

In that scenario the whole fabric of society would start to disintegrate and you would see widespread civil unrest and food shortages."
Toby, Winchester, Hampshire, UK

Toby, I can't help but feel that you are being slightly melodramatic. I'm guessing you own a whole swathe of property of property and simply can’t comprehend the obvious truth? Did you really think house prices outstripping personal earnings at a ludicrous rate was going to continue forever??? Get ready for the fall. The dream is over

James Peel, Leeds,

Part of the issue is caused by a media that like to present complex data, in this case the housing market, using just one metric.

The average house price is largely meaningless, and even more misleadingly is based on the average of transactions in the period.

The average house is not bought by a person of average income. It is bought by someone of above average income.

The less affordable property became, the richer the average buyer left in the market got, driving the transaction values up.

Richard Boyce, Haywards Heath, West Sussex

Interesting, but as an architect working for private housing developers there is a supply problem developing in the new build private housing sector. This involves 3 factors - firstly, councils are now imposing 'infrastructure' costs on a per unit basis, secondly, the threshold for social housing is being reduced so that even small sites are being affected (build 10 units and 4 have to be affordable ie provided without profit) and finally, the ramping up of low energy requirements, which are being phased in. The final phase is 'zero carbon' by 2016 which will add £40,000 to an average home in building costs. Expect a severe downturn in new private home construction as sites become unviable because of all these costs. My clients see only one way out and that is to find land, obtain planning permission and sell on to a Housing Association who have government funds. As new home supply reduces, the government will wonder what is going on, but the seeds have been sown. Higher prices?

Michael Moran, Sutton, UK

Remember that the BofE rate is to loans to banks, not loans to you and does not have to be passed on to us. The wanted effect of this rate cut is for banks to shore up cash to meet liquidity needs (the diff between what they borrow and what hey lend at). Raising rates would be a disatster for everyone, no good having property prices drop and still not be able to join the ladder if you are unemplyed due to a recesion.

Personally I think that the rate cut should have been more aggresive, 50bp down. Inflation is not the only target that the MPC should be monitoring in rate decisions anymore as other factors are in play with regards to that (threat of recession, demand from emerging markets).

Dan, London,

Part of the problem is that house prices have too much importance.
House prices have risen astronomically over the last few years, consequently a 20 or 30% correction will only take a small nibble out of that massive increase in value.
I thought that we wanted to increase saving in this country - if you believe politicians - reducing interest rates below inflation will not achieve that objective.
Inflation is threatening to get out of control, therefore interest rates should be going up not down, in order to restore some stability, particularly in the value of the currency
Reducing rates ,will reduce the value of sterling ,put up input costs particularly for manufacturers and increase general inflation.
The housing market crisis has happened by allowing hyper inflation to establish itself in the housing market.
Repeating the same mistakes through too low interest rates will not repair the housing crisis but will lay the foundations for an even bigger economic crisis next time

James, NI, UK

GB has seen its 30% price fall in property alredy ........., accounted for in Euro after desastrous devaluation of the Pound. This is also a way of overcoming an overheated, property market. Well done and good luck with the other 30% to come.

Jo Jacobs, Bremen, Germany

A 30% fall in house prices would mean huge numbers of people declaring themselves bankrupt, which in turn would cause the High St banks to become insolvent.

In that scenario the whole fabric of society would start to disintegrate and you would see widespread civil unrest and food shortages.

You can't just glibly assume that the average tax-payer will take this lying down. We are different from the USA in having a much higher population density, and no rural economy/manufacturing to fall back on.

Those who find themselves dispossessed by what they perceive to be the banking/financial industry's greed will take matters into their own hands, and it won't be pretty.

Toby, Winchester, Hampshire, UK

Your exclusive focus on the relationship between average income and avegarge house prices ignores another key factor, namely the relationship between the average cost of servicing a mortgage and house prices. Your conclusions, therefore, are half baked.

The principal reason for the UK decline is the credit crunch, a problem originating in the US. This has resulted in mortgage offers becoming more scarce and expensive and, hence, there's been an adverse impact on demand and house prices. Once credit pressures in the wholesale money markets ease (this is already happening), prices will begin to rise again due limited supply/high demand.

Economists and newspaper writers have for at least 5 years been predicting falls in house prices and if one repeats a theory for long enough, due to the cyclical nature of economies, eventually one will be right. But if a reader decided not to buy 5, 4, 3, 2 or even one year ago on the basis of such predictions, they would be kicking themselves

Jonathan, London,

Reference to the article 'House Prices:Disaster ahead' - I am amazed that someone writing in such a prestigious publication as The Times (albeit The Times on-line) can make such an ignorant mistake - it is 'The Book of Revelation' (singular) not 'The Book of Revelations' (plural) - this is not just an acedemic point as the 'Revelation' that is being referred to here is not just 'future events' as such but The Revelation of Jesus Christ.

Andy Whittaker, Near Harlech, UK

why do we need stupid comments like peter's in response to an article like this? you should be commenting on the logic of the arguments - whether a fall of 30% could really be described as a disaster (ie - what percentage of owners have purchased in the last couple of years and might be forced to sell in the next couple - low interest rates and continued employment should mean most of this minority will be fine) or whether and why house prices will move with average incomes.

what we don't need is the same bleating about first time buyers that is the knee-jerk response to every other column on this subject. apart from anything else, peter, if you couldn't afford to buy before, how is a 10% fall in house prices going to help you when mortgage lenders are pulling in their horns and will lend you even less? if you think a cheap house is about to fall into your lap at someone else's expense, you are deluded and mean.

jem, london, uk

It's not all doom and gloom, now is a great time to pick up a bargain. Prices have fallen nearly 5% in my area, representing a good opportunity to get on the ladder for those who have been waiting a while. And once people start buying again it'll probably push the market up and prices will start rising again.

Deway, Graves end, UK

As an American I say you are irreponsible to compare US drops to Britain, when you just printed, less than two days ago, that the prices had only gone down 1.7 % in London! That is NOTHING on a 300,000 pound home. Are you trying to precipitate the drop?

Krista, Austin, Texas

Has home supply in the UK been growing?

Well, thats undeniable.

Has the house supply?

You now, three bed semi's, 4 bed detached, front and rear gardens?

Those houses people actualy want.

Nope, they are in fact all but impossible to build any more.

Will the index fall?
Probably
Will "luxary" flats be an absolute blood bath?
Almost certainly

Will good quality housing be fine?
More than likely

Dominic, Manchester, UK

To Peter from Birmingham - well said. Why is it only in the housing market that commentators regard inflation as good news. Also, why should housing go up with incomes - we don't expect other commodities to do so. The housing market is a state sponsored scam caused by excessive planning restrictions.

Mike, Hertfordshire, UK

The lower interest rates now rather than in the 80's argument is tired and flawed.

There used to be MIRAS. This is never taken into consideration in media statements.

Now house prices are three times what they were.

Do the sums.

Also: Does anyone give a hoot about the savers in this country?

Sterling is falling through the floor.

Inflation will be massive.

Where is the coverage in the press?

Tony Lewis, Maidstone,

After boom comes bust, after a bubble an overcorrection. Soon the buy-to-let investors will stampede to the exits. So far, so good. Serves them right and makes houses affordable again.

What is worse is that the economy has been powered by debt backed by unrealistic house prices. Once the people feel the pinch (helped by tightened lending criteria from the banks), a lot of service jobs will go, feeding the downward spiral. I don't know how long the trough will be, but it will be deep!

Herbert, St Andrews, UK

As far as I'm concerned the crash can't come soon enough. Perhaps then some of us who have been priced out of the market by the ludicrous merry-go-round of greed that the government has allowed to take place over the last so many years will actually be able to afford to buy a home.

Peter, Birmingham, UK

One word: Japan.

Japan has still not recovered from its property bubble in the late 80s. House prices dropped by 40% and stayed flat for over 15 years. When interest rates were lowered to zero it didn't help because banks hoarded the money to pay down their bad debts. with the coming recession in the US and its knock-on effects on the world expect a long, slow recovery.

Mark, Westminster, London, UK