Where are we now?

The blogosphere is talking more and more about empty buy-to-let flats and strains on housing.
I keep telling people I've been through four property booms and busts. This last boom is the longest and strongest - 1995 to date and 300% appreciation nominally. Mind you, taking inflation into account its only about 260%. From 1969 to 1995, taking inflation into account, there was effectively no increase. What it did mean was that the value of the loans against the properties faded away.
At the moment, effectively the opposite is happening. Because inflation is relatively low, the cost of the loans and interest is increasing. The properties are no longer outgrowing inflation ( ok you can argue odd percentage points, but in essence the point is valid). Buy to letters are subsidising the value of their properties, and don't seem to realise that this actually adds to their in-costs.An Australian asked me recently what the golden rule of property investment was. To paraphrase Warren Buffett : The first rule of property investment is to make sure the rental covers the interest costs. And rule two? Remember rule one.
So where are we now?
I don't think we are on the edge of a cliff. That said, credit markets have effectively dried up. Some $400 billion of deals are on hold or indefinitely postponed. The Fed's statements yesterday didn't give any cheer, but that might well be a smokescreen. They have long wanted people to assess risk properly and stop the merry-go-round of the greater fool at higher prices syndrome. If there's a serious bankruptcy, all bets are off.
My view is that activity in UK housing will now start to drop. This always pressages falling prices. After all, if you want to move you have to sell.
So if you want £500,000 for your house and someone offers you £475,000, don't walk away.
That 5% drop might look a bargain in a few months time.
Oh, and if you are cash rich, drive a really, really hard bargain.
Or bet on interest rates having to fall soon in the States.