Calling an overvalued market is not like calling the top and it makes no difference whether the market is house prices or equities. The analogy with equities is particularly apposite today because there is little question that it is the City bonus boom that reignited London prices. London agent Lane Fox reports that nearly half the buyers of properties it sold in the last year worked in financial services. Add in the lawyers, who are also enjoying a feeding frenzy in mergers and acquisitions work, and the proportion rises to over half.

The equity link is entirely consistent with my analysis (see Property Myths in the Index) that the housing cycle has nothing to do with the supply of new homes and everything to do with the supply of money and credit. When the liquidity bubble bursts, the Deputy Prime Minister may realise he was fed drivel about housing shortages and the Chancellor may wonder whether it was really so smart to let the Bank of England make monetary policy decisions.

TAGS: house prices