It is not looking good for homeowners. The economy is recovering and the stock market has bounced back but the housing market is stuck in the doldrums.
The crazed bubble that coated bricks and mortar with a gilded veneer did not properly deflate when the rest of the economy imploded in 2008-09; it was artificially propped up by low interest rates, quantitative easing and cash from abroad.
Starting in mid-2009, the property market even underwent a largely irrational rebound, driven by tight supply and a realisation that the world hadn't ended.
Now that this dead cat bounce has run its course, the market is deflating again, albeit at a relatively gentle pace, for a simple reason: residential property is still overvalued.
The average house cost £168,400 a year ago; today it would change hands at just £162,900. In cash terms, that is a drop of 3.3 per cent; after inflation, that turns into a slump of 8.8 per cent. Prices have further to fall.
There are many reasons to be bearish on property
The downturns of the early 1990s and mid-1970s triggered dramatic slumps. Real house prices fell 30 per cent and it took four years before they started recovering again, according to Lombard Street Research.
This time, inflation-adjusted prices bottomed out only 17 per cent below peak and begun rising substantially after just 18 months. This never made any sense. Prices are likely to drift down in real terms for a long while to come, with falls set to intensify when interest rates start to rise.
Research consultancy Capital Economics has found at least eight examples of double-dips in real house prices - of the kind we are now undergoing in Britain - globally during the past 40 years. On average, the second leg of those corrections wiped off 12 per cent from real house prices (if inflation is five per cent a year, then most of this could happen in two years with stagnant nominal prices). There is still a long way down to go.
Demand remains subdued because prices remain too high compared with incomes, especially for first-time buyers. Many families are worried about the state of the recovery and see it as less risky to rent. Credit is more expensive, mortgages require higher deposits, and loan-to-value requirements have been tightened, partly because banks are worried about potential house price declines and default risk - and partly because of regulatory pressures forcing them to be more prudent and to hold more capital. Mortgage approvals are less than half of pre-recession norms.
The share of transactions financed by cash has been falling. While the super-rich will continue to buy London property, especially with the pound so low, this prop will be weakened by the increasingly crippling taxes being levied on property. Stamp duty on homes worth £1 million or more was hiked to five per cent this month.
Even before it starts putting up interest rates, the Bank of England reported an increase in default rates on mortgage lending in the first quarter of 2011. What's more, as Capital Economics points out, lenders expect a further increase in default rates over the next few months.
One reason for that is public sector job losses; another is the fact that take-home pay is dropping as a result of low pay growth, tax hikes and exploding prices; and another is the inevitable and sharp increases in the cost of lending that the Bank will soon have to impose to rein in out of control inflation.
The value of privately-owned housing more than doubled over the past decade. There was a 118 per cent increase from £1.719 trillion in 1999 to £3.755 trillion in 2009. During the same period, the retail price index rose 29 per cent. Even accounting for renovation, extension and upkeep costs, property owners banked large gains. These helped drive consumer spending - via the extraction of equity - and also investment, as many loans for small businesses rely on housing collateral.
The reverse is now true, with many owners repaying their mortgages as fast as possible. This decline is therefore bound to act as a drag on economic growth.
There are other reasons to be bearish on property. The anti-City mood and new taxes and regulations are making London less appealing for financial businesses. Shared equity schemes and the like will only help demand at the margins.
At the peak of the market in 2007, the fall in prices required to restore the house price to earnings ratio to its long-run average was 10 percentage points greater than in previous episodes of over-valuation. And less of the required fall in prices was delivered by the initial crash of 2007-09 than in any previous double-dip in house prices.
All of these effects pale in comparison to the likely impact of substantially higher interest rates. The next few years will be grim for property owners.
Allister Heath is Editor of City A.M.