Take a look at these two charts, and see whether you can see any patterns. The first is real average wages (deflated by the retail price index) and the Halifax UK house price index (again, deflated by the retail price index)
I think we are are fairly safe ground if we conclude that house prices have departed significantly from earnings.
Here is a second chart, this time, we take out average wages and include real personal sector debt secured on housing. This series comprises of mortgages and home equity loans. Again, it is deflated by the retail price index. As you can see, there appears to be a close connection between the two series.
While there may be many factors that influence house prices at the margin, the availability of mortgage debt is the key driver. Without the huge growth of mortgage debt, there could be no bubble.
However, that average wage series may yet have a say in the long run level of house prices. How can all this newly acquired debt be repaid? Yes, it has to be wages. At some point, house prices must re-establish a heathly relationship with average wages.
Perhaps we are at that point right now. Take a very close look at those pink lines. The last data point is looking downward.
(All series are indices where April 1993=100; average earnings data is from the ONS; debt data is from the Bank of England; house price data is from the Halifax. Although the charts were constructed by myself; anyone who wishes to use them on their sites, just go ahead; an acknowledgement would be nice but not compulsory.)