The housing data is in for December, and prices are down for a fourth consecutive month. In many respects, the housing crash is a process of aclimatisation. Just as the bubble was marked by years of double digit growth, we must now learn to accept that prices will continue to fall for the foreseeable future.
So what happened in December? According to Hometrack, the average cost of a home in England and Wales fell by 0.3 percent. After 12 months of those kinds of monthly declines, prices would be down around 3.6 percent. Given that the RPI inflation rate is currently about 4.1 percent and rising, in real terms, we can, perhaps, expect house prices to fall somewhere between 7 to 8 percent this year.
This raises an interesting question; how long will the housing crash take? Suppose in rough terms, house prices are overvalued by 100 percent in terms of affordability and price to income ratios. Assuming that the combined nominal price fall and rate of inflation is around 8 percent, then it would take about 8 years for house prices to work off all that excess valuation.
So, homeowners, how do you feel about eight years of a "healthy price correction". Tough medicine, methinks.