Ask any estate agent, and they'll readily admit that prices in London are crazy.
Indeed, if you look at the stats such as the ratio of prices to incomes of first-time buyers it's hard to dispute that we're in the middle of a bubble.
History suggests it's inevitable that prices will fall. After all, reversion to the mean is one of the facts of life. However, this still raises the question of when this will start to happen.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The price indices are giving a mixed picture. While they all agree that the surge in prices of the last year has died down, some indices suggest that prices may have peaked. Others suggest they are still going up (albeit at a slower rate).
However, there are two factors which mean the correction may come sooner than later.
Why I feel sorry for the banks
It's hard to feel sorry for the banks. The taxpayers bailed them out in 2008. Since then they benefitted from money printing which was done in a way that greatly boosted bank profits and from various other schemes.
However, since the crash, there has been a sense of "damned if you do, damned if you don't" when it comes to mortgage lending.
On the one hand, banks are lambasted for being reluctant to lend.
On the other, every loan they make is (rightly) scrutinised by regulators to make sure it's not reckless.
There's also a sense that when house prices do start to fall, George Osborne and Mark Carney will find some way to shift the blame towards the banks.
This is why a recent decision by Lloyds is so important. The bank has decided to restrict the maximum amount they will lend through the equity part of Help to Buy to £150,000. (Equity loans are when the government lends up to 20% of property's value to the buyer. It's only available for newly built homes.)
The decision matters because it effectively ends Lloyds' participation in the equity part of Help to Buy not just in London, but large swathes of the UK as well. According to the Nationwide, seven out of the 13 UK regions have average prices higher than £150,00 London's average is just over £400,000.
Given that Lloyds currently has a 50% share of such loans, the move will have a major effect on the scheme, with other banks struggling to fill the gap. While the restrictions only apply to the equity part of the scheme, Lloyds has also decided to increase the cost of a typical five-year fixed loan rates from 3.64% to 3.94%.
If others follow suit, it is possible that this could have a major effect on prices.
Homeowners looking to sell
Banks turning off the taps is not the only threat. There are also indications that the sky-high prices are starting to have an effect on the balance between supply and demand.
According to monthly survey data from the Royal Institution of Chartered Surveyors (Rics), the number of enquiries from members of the public continues to decline, and is nearly back to the levels of last summer. At the same time, the number of sellers putting their homes on the market has risen.
Indeed, if you look at the regional breakdown of data, this trend has been particularly strong in London, with nearly 50% of respondents saying that there has been an increase in the number of homes coming on to the market. Confidence in the market is also falling, with 57% saying that it is a good time to sell.
Comments from individual surveyors also reflect that things are changing. For instance one London surveyor says that "properties are still selling, but not at crazy prices". Another notes that, "demand in some areas has fallen back from its peaks".
Several of them are even talking about price cuts, saying "we are now having to re-adjust asking prices to encourage offers", "more properties are coming onto the market", and "the housing market is cooling down".
Overall, Simon Rubinsohn, Rics' chief economist, thinks that, "the London market appears to have been particularly affected by the increased air of caution".
This is borne out by the July Hometrack survey that finds the time taken to list a house on London's market increasing to 4.3 weeks, compared with a low of 2.7 only a few months ago. The achieved price has also dipped from 99% of the list price to 97.5%.
Market may be about to turn
It should be clear that we've either reached the peak of the London market, or are very close to it. Indeed, when the correction comes, it could be substantial with falls of 15-20% very possible.
This means that you should try to put off making a purchase, or bring it forward if selling. At the very least, you should stay absolutely clear of any buy-to-let schemes involving London residential property.
Of course, this may be difficult if you need to find somewhere to live or are part of a chain. Even then, it might be worth making a much lower offer than the asking price, especially if you don't need to arrange a mortgage.
Our recommended articles for today
One great business model
Take from those desperate for yield, lend to those desperate for cash, and take fees off the top. It's the perfect business, says Bill Bonner.
The gold price remains in whipsaw mode
The gold market has been volatile of late, says John C Burford. And while that can be tricky to trade, it also presents opportunities for profits.
On this day in history
7 August 1946: Turkish Straits crisis reaches its climax
A row over who was allowed to sail through the Dardanelles and the Bosphorus led to a stand-off between the USA and the USSR.
