People opinions on house prices always amuse me so I enjoy reading these threads.

For a long time I have said house prices will fall 50% from the Winter 2007 peak, maybe getting there by late 2011 or 2012. A couple of years ago people use to look at me like I was mad. Now slowly but surely people are starting to see that I?m on to something. I still love people responses though whenever the topic comes up.
One of the classics which people always use is ?X area will be OK for reason?. Here it seems to be that ?Forest Hill? will hold up because we have a museum about birds, and children?s play area, an overpriced restaurant and possible, a swimming pool and tube line one day. While I haven?t got any particular argument against that I would point out that if you go to any ?X? area of the country the locals will give you a ?Y? reason. Everywhere.

What people don?t understand is that we have had a debt boom. After the 2001 recession that wasn?t. Our Glorious Leader while still at the treasury pumped up the money supply. He did this to avoid a recession following the dot.com boom, he was successful in stoking up a housing boom instead. The rules for banks was changed so that reserve requirements where halved and public spending rocketed.

Money supply is the total amount of money in the economy and can be created by a bank making a loan, which is effectively new money into economy. Take it from me as an economist that they don?t just loan out the money you deposit with them, indeed, you instinctively know that?s not the case anyway, because you have never gone to the bank to ask for some money out and they have replied ?sorry, we lent it to someone else?

The extra money had to chase the same amount of goods and services as our nation?s savings ratio steadily dropped to an all time low. People thought they could have whatever they want now, on credit. As a result house prices doubled in 7 years. Not because the people living in them became twice as productive, but because of extra debt bided them up. This debt needs to be repaid and prices will drop to the pre-boom levels.

?look around you, house prices have not fallen here? another classic. They look at estate agent windows and see that asking prices have not fallen. Well I could ask ?300 for my toothbrush, but no one is going to be daft enough to buy it. Same with houses, ask whatever you like, its what they sell for that matters. Selling prices are already at least 25% down.

Another great one is getting an Estate agent to value it. Estate agents are competing for your business, and even when they themselves are not firmly in denial, they know most of their customers are. So they give you a high valuation to get you on their books, and worry about bringing down the price later. Others have only been doing the job less than 10 years, and have never seen a correction before, so they are just as deluded. Again, it selling price that matters, not what you think its worth or your estate agent thinks its worth, or even how much you need it to be worth to pay your debts. It is worth what a buyer is willing and more importantly able to pay you.

I appreciate that the blinkers are not off yet, as we are still in the denial stage of the correction (as oppose the fear stage) so most people will think I?m talking rubbish. But seriously, if you can sell now, at 25% less than peak, you?re getting a barging, do it know before the other 25% comes off.

Unless your selling flats in FH Central. In which case your on another planet if you think your ever going to get even half price for those little slave boxes, quarter of a million for a 1 bed flat in zone 4, give over.