Leatherhead Matters

Fasten your seat belts! If you need any evidence that, what goes up must come, down look at this graph from the Housepricecrash.co.uk web site . It shows the ratio of average house prices to average net income from 1975 to 2007.

The past is not always a good predictor of the future but, UK house prices are already headed down. The question now is how far? And how much collateral damage will this cause? 

 Gordon Brown earned his reputation for economic competence as a Chancellor in a period of unprecedented house price growth. Now he is Prime Minister the chickens may be coming home to roost! We are now just entering the “fear” phase of a disintegrating housing bubble (see chart below).

  The Phases of a Financial Bubble

How long it will take for the bubble to unravel  and enter the “despair” phase is anybody’s guess but, Gordon must be worried….very worried, with an election required before Spring 2010. His options are limited but, there must be a tremendous temptation to inflate his way through to a softer landing by letting incomes increase more than Prudence would recommend. Whatever, course he chooses the consequences for some sections of the community are likely to be severe!