Considering that prices have risen by 3-400% in London and at least 200% in many other parts of the UK over the last ten years, there's certainly room for a correction.

http://nihoncassandra.blogspot.com/2007/09/pfwoooor.html

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But the revealing thing was when I questioned him about yields. "Phfwooor, yields? Ha ha! No one cares about yields". "It's going up baby!". "He continued, "Take this flat here (FYI - a renovated basement studio lipsticked with recessed halogen lights, large flat screen entertainment centre and Franke fittings and Bosch turbowasher (but still shitty plumbing!) went for GBP210 a year-and-a-half ago, now its GBP405! He continued, "My mate, he bought a flat a year ago for 400, had 30k of carry for the year, and 20k of rental income and flipped it out 12mo later for 550. Yield? Who needs yield when prices are rallying like that??" "Ummm errr yes I interrupted, but, I was here in 1988 and I could swear I remember the secretary's all talking about their real estate triumphs in precisely the same language with exactly the same enthusiasm, but it too ended in tears". "It ain't gonna happen", he chimed. "At least not here. Not now, not to me. Things are different now. We've got Russians coming. It's a unique micro-climate. Everyone wants one. [insert additional reason of choice for denial here] And anyway prices HAVE kept going up, right?" He looked at me for confirmation that I couldn't give.

Anecdotally, over the past few days, there seems to be a whole lot of flats empty & warehoused like that which I seen in my walks. I wonder if they are lereaged, and if so, by how much? I wonder whether the huge scale of gentrification is being undertaken speculatively and with leverage or whether its been comissioned privately, for cash, from LAST year's city bonus. And what would Shiller say about historical values, affordability et.al. after the continued run-ups? I'm not forecasting doom, for the restaurants remain full, and city is bubbling with life and wealth. Perhaps it will continue. But it is worth considering the impacts of deleveraging and US recession upon London Real estate, arguable the BEST asset class amongst its peers. For something that is leveraged, illiquid, with large bid-to-spreads that has doubled in the last year or two, and where lots of inventory is held by the specs for speculation, could just as easily see a quarter to a third taken right off the top, even before margin calls or negative equity kicked in. The rapidity with which residential values have compressed and transactions all but seized-up in some US markets is an awesome sight to behold. And the certainty with which that sees the market at this point in the cycle just smacks of classical overconfidence, and those exposed should, at the very least, take note.