http://en.wikipedia.org/wiki/Residential_property_market_in _the_United_Kingdom


History
British property prices experienced sharp rises in the late 1980s due to excess demand as the bubble mentality took a grip. Property prices fell by 30% in real terms (though nominal decreases were smaller) through the early nineties due to a lack of affordability and higher interest rates. There was an increase in property repossessions by banks and building societies, and many people were left in negative equity for a number of years.

Prices started to recover in 1996, slowly at first and in some limited areas. By 2001 prices had in most places returned to their pre-correction levels, and continued to rise, so much so that in 2004 many properties were "worth" double their market price only three years before. In many cases prices were increasing by 20% per year (1.5% per month).

Prices saw a cooling in 2005 that led some forecasters to predict a sharp correction in the market, that might have reduced house prices by as much as 40%. However, an admitted error [8] on the part of the Bank of England Monetary Policy Committee, led it to cut interest rates in August 2005. This stimulated house-price inflation. This renewed house price inflation in late 2005 continued throughout 2006 and early 2007.

There are strong parallels between the late 1980's and 2007. As of June 2007 repossessions are at the highest levels ever recorded in the UK, with a similar figure for bankruptcies. House prices are at an all time high in both nominal and real terms, and the house prices to incomes ratios is the highest ever recorded. It is estimated that 50% of all repossessions are from buy-to-let property investors. Restoring prices to the long-term average would require a 50% fall in house prices over the next few years.

In world markets, house price crashes are being experienced in the USA and Spain, while falling rents in the UK may lead to a reduction in property prices in the UK. Japan experienced the biggest ever house price bubble and crash to date. House prices in Japan today are still below the average for 1990, some 17 years before. The current house price bubble in the UK is nearly as big as that of Japan in 1990.

With sub-prime mortgages taking up a larger part of the mortgages in UK property, higher interest rates could cause these to foreclose and provide a flood of cheap property, artificially collapsing the market and making buy-to-let purchases worthless so reducing the supply and demand problem. Reports after the sub-prime crisis show prices falling. [9]

British Housing Crash A 'Real Risk'
http://www.forbes.com/2007/11/29/uk-property-nationwide-markets-equity-cx_po_1129markets08.html

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US price predictions grow worse and worse, the babble about a "soft landing" is well and truly over now.

http://www.businessweek.com/magazine/content/08_06/b4070040767516.htm?ref=patrick.net

Housing Meltdown
Why home prices could drop 25% more on average before the market finally hits bottom.

But it's considerably more likely that the storm is still gathering force. On Jan. 30 the government said annual economic growth slowed to just 0.6% in the fourth quarter as home construction plunged at a 24% annual rate. The Standard & Poor's/Case-Shiller 20-city home price index fell 7.7% in November from the year before, the biggest decline since the index was created in 2000.

And that could be just the start. Brace yourself: Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30

While a 25% decline is unprecedented in modern times, some economists are beginning to talk about it. "We now see potential for another 25% to 30% downside over the next two years," says David A. Rosenberg, North American economist for Merrill Lynch (MER), who until recently had expected a much smaller slide.

Shocking though it might seem, a decline of 25% from here would merely reverse the market's spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation. There's a recent model for this kind of return to normalcy after the bursting of a financial bubble. The stock market decline that began in 2000 erased most of the gains of the boom of the second half of the 1990s, leaving investors with ordinary-sized returns.