For a long time, estate agent windows were incomprehensible to me. Prices simply did not make any sense. How could a grotty terraced house in North London be worth £500,000? Were city high flyers really spending their bonuses on houses that just one short generation ago were occupied by bus drivers and dinner ladies?
More recently, I believe I have developed a better understanding of the estate agent's window. With the virtual disappearance of first time buyers, the UK property market has become a closed community of speculators, trading with each other.
It works something like this: speculator A lists their overvalued slum at the estate agents. Speculator B buys it with a loan from the high street bank, and the estate agent takes his commission. The solicitor gets his cut arranging the transaction, and the Treasury gets the stamp duty.
A short time later, speculator B lists the same property at a higher price and passes it along to Speculator C. So long as the high street bank is prepared to lend out progressively larger mortgages, the cycle continues, with prices accelerating at every stage.
In Britain today, housing ownership is churning around in a stagnant pool of speculators. Each time a property changes hands, the new owner takes on a larger mortgage than the previous owner. At an aggregate level, the level of housing related debt has exploded. Nevertheless, everyone seems comfortable because property values have remained buoyant.
Occasionally, housing speculators turn to people like me and try to explain this debt accumulation cycle. Rather than talk about shoddy lending practices, they explain that there is a terrible housing shortage that pushing prices ever higher. In fact, there is so much pent up demand for housing that prices can only ever go one way.
There were occasions when these housing speculators gave me some advice - "go on girl, get out there and get on the property ladder". Here, I must admit to the occasional moments of weakness that led to some unpleasant trips into the estate agents office. I even looked at some potential properties. However, it was follow-up visits down to the high street bank that put me off home-ownership. As I looked at the 25 year repayment schedule, I just couldn't see the annual holiday, or the regular night out. All I could see was a lifetime of financial sacrifice.
These conversations with the home owning elite, the estate agents and the high street mortgage brokers gave the rise in house prices a dubious plausibility. After all, how can anyone argue against the iron laws of restricted supply and pent-up demand?
For a long time, I have to confess to being taken in by this line of thinking. However, one day I noticed that my rent had remained remarkably stable, despite the surge in house prices. If rents are not going up, then where is the housing shortage?
With the housing shortage justification blown away by my stagnant rent, I started to look to credit growth for the answer. Sure enough, the data told a very simple story; UK credit growth was smooching around the housing market like a teenage boy with his first girlfriend.
It soon became obvious that this bubble depended on excessive credit growth and debt accumulation. The housing shortage was merely a abili for irresponsible banking. Furthermore, it was also obvious that house prices would continue to rise so long as banks extend ever larger loans. It would stop as soon as the credit tap was turned off.
After ten years, it appears that the UK housing market has finally reached this point. UK banks have severely restricted mortgage growth. Credit growth has jilted the housing market. The separation will be painful.
Today, speculator A can no longer sell her overvalued property to speculator B. The estate agent will not receive their commission, and the solicitor will not arrange the sale. As for the Treasury, it will not be receiving its stamp duty.
Speculator A, however, will be carrying a very large debt that the high street bank will expect to be serviced. Initially, speculator A will avoid facing up to the harsh truth that their property can not sell at a price sufficient to pay off the mortgage. She will be left with just two choices; either keep paying the mortgage or default. Both will be painful, but the High Street bank would definitely prefer the former rather than latter option. Some speculators will pay, but way too many will end up defaulting.
As for the future, house prices will fall; the bus drivers and dinner ladies will eventually recover those shabby North London terraces. The city highfliers will again buy houses out in Amersham. As for me, I will be able to pass by one of the few remaining estate agents offices without feeling either confused or angry. Yes, better days will soon be upon us. Normal people will again be able to think about buying a home.