The Mail today ran a story on the serious state of the UK housing market. Although there was a correction in 2008, some areas of the country are back up  at pre 2008 levels and are selling way above the normally safe level of 3.5 average yearly earnings.

Since 2008, prices have fallen back, but only a little. In those areas of the country least affected by recession – yes, London, I’m looking at you – house prices are already back to their peak. In the hottest areas of town, prices have almost certainly exceeded previous peak levels. The changes to stamp duty introduced in the budget may shave a prices of the most expensive homes by a fraction, but only by a fraction. The simple fact is that, while our real economy stagnates or falters, we live with a property market almost as hot as it was in the burning heat of 2007. That heat wasn’t justified then and it isn’t justified now. The sombre truth is that we were due a property crash in 2008-09 and got little more than a splutter and pause.

The cause of the property bubble has been easy cheap credit similar to Global property bubble elsewhere that have popped spectaclorily in the last few years, i.e Ireland, Spain, US etc. The cheap money pumped into the economy by the BOE has only created more dangerous bubbles and has not helped the economy. What happens when they finally go bust?

Prices are high because money is still being pumped relentlessly into the economy by the Bank of England. That money hasn’t had much impact on the jobs market: I guess you’ve noticed that. It hasn’t had much impact on business investment or wages or productivity or innovation or infrastructure or business creation or any of the other things which might actually make a long term difference to the economy. Instead, it’s affected three markets to an unhealthy degree. Those markets are the stock market, the bond market and the property market.

You’ll already have noticed the buoyancy of the stockmarket. You’ve probably thought how come the market is trading at four-year highs when the economy is deep into its second recession in the space of four years.

You’ll already have noticed the strength of the bond market. You’ll have wondered how come the government can borrow money at little more than 2% when its deficit is gaping and the economy is getting smaller, not bigger.

Unfortunately a correction must take place eventually and when it does it also needs to make up for the minor correction that took place in 2008/2009.The injection of cash from the BOE stalled the property market from crashing that time by inevitably it can’t hold it off forever.

The sad fact, however, is that market is every bit as warped as the other two. And when a market has lost touch with reality, reality has a nasty habit of biting back. That doesn’t just mean a return to long-run sustainable levels. It means a dip below those levels, before a sustainable level can be found.

That dip will be protracted, bloody – and furiously resisted by the banks who will demand further bailouts to protect their business models.