In January 2004 I wrote the FT’s Personal Money front page in the days it was a broadsheet section of the weekend paper. The headline was ‘Time to put a ceiling on our money illusions’. The angle was that the rise in real house prices was something to worry about, not boast about. My analogy for the eventual correction was Japan. Here’s what I wrote:

“How relevant is Japan’s experience? Very. Japan has suffered a vicious combination of falling equity and property prices, crushing consumer confidence, piling up banks’ bad loans and so making it difficult for the authorities to stimulate demand. Both America and the UK have enjoyed a bigger than usual house price rise, whether we call it cycle, boom or bubble, so a heavy fall in house prices is likely. No major equity market except Japan is so low as to be at all confident of avoiding further falls. So the same generalised deflation of asset prices and confidence might not be avoided. With much lower household savings than the Japanese, the impact on living standards could be dire.”

TAGS: economics, house prices