I suspect that in reality 'catch up' will only occur when interest rates rise and then it may just be a slow down rather than a crash, but the forecasts are, I believe, still long-term low.
I suspect the problem with our absolute valuation of house prices lie, naturally, through comparison of our life-experinces of them. If during our life's experience interest rates have been generally high, then house prices have been generally cheap (though we perceive them as normal). Which brings me back to the problem of trying to value a house in an absolute sense, it's impossible. With other luxuries or products we use we can trade them off - it is meaningful to trade leather seats and alloy wheel against a higher spec home entertainement centre, or a new pair of trousers against a new pair of shoes, but we can't trade homes in an absolute sense.
I was thinking, imagine if one can, that you took into our society a group of people who had no experience of money (but valued our society the same as us) and asked them to value different commodities through some process of balancing/trading off (& given the prices of some items). They'd probably do ok and arguably similarly when trying to put those non-essentials on some mental weighing scales and arriving at financial valuation for the different prodcuts. But what about pricing up a house? I reckon they'd not have a clue what price to put on it and they'd differ wildly in their estimations. It would be an impossible thing for them to measure, and so how would they know what is cheap and what is expensive? However, if you asked them to divide up their monthly wage between what they'd wish to spend on food, clothes accommodation etc I'd suspect they'd fairly quickly arrive at at similar solutions (allowing for perosnal preferences) - once they realised what their money would buy them. And consequently they'd trade happily trade off the monthly contributions required for, say, two holidays a year against the extra required to buy a detached rather than semi-detached house. So you'd expect them to quickly & fairly confortably price up a range of houses based on what they would have to pay per month.
This indicates to me that this is how we prefer to measure/value house-prices: it is meaningful. If interest rates are long term low, then current prices may not be overvalued at all. It's rather annoying that, 5 years ago, I measured house prices in an absolute sense, based on my previous years of loose monitoring of these prices, accompanied by of course a changing sense (with age) of value-for-money, which distorts judgement even more, especially for a gambler.
* That all said, other qualitive measurements indicate that some correction is needed E.g. expensive cars outside cheap houses, young professional couples barely able to afford a 1-bedroom flat. One would have though there to be an inevitable correction and re-ordering to bring things back into line.
Re: house prices
I suspect the problem with our absolute valuation of house prices lie, naturally, through comparison of our life-experinces of them. If during our life's experience interest rates have been generally high, then house prices have been generally cheap (though we perceive them as normal). Which brings me back to the problem of trying to value a house in an absolute sense, it's impossible. With other luxuries or products we use we can trade them off - it is meaningful to trade leather seats and alloy wheel against a higher spec home entertainement centre, or a new pair of trousers against a new pair of shoes, but we can't trade homes in an absolute sense.
I was thinking, imagine if one can, that you took into our society a group of people who had no experience of money (but valued our society the same as us) and asked them to value different commodities through some process of balancing/trading off (& given the prices of some items). They'd probably do ok and arguably similarly when trying to put those non-essentials on some mental weighing scales and arriving at financial valuation for the different prodcuts. But what about pricing up a house? I reckon they'd not have a clue what price to put on it and they'd differ wildly in their estimations. It would be an impossible thing for them to measure, and so how would they know what is cheap and what is expensive? However, if you asked them to divide up their monthly wage between what they'd wish to spend on food, clothes accommodation etc I'd suspect they'd fairly quickly arrive at at similar solutions (allowing for perosnal preferences) - once they realised what their money would buy them. And consequently they'd trade happily trade off the monthly contributions required for, say, two holidays a year against the extra required to buy a detached rather than semi-detached house. So you'd expect them to quickly & fairly confortably price up a range of houses based on what they would have to pay per month.
This indicates to me that this is how we prefer to measure/value house-prices: it is meaningful. If interest rates are long term low, then current prices may not be overvalued at all. It's rather annoying that, 5 years ago, I measured house prices in an absolute sense, based on my previous years of loose monitoring of these prices, accompanied by of course a changing sense (with age) of value-for-money, which distorts judgement even more, especially for a gambler.
* That all said, other qualitive measurements indicate that some correction is needed E.g. expensive cars outside cheap houses, young professional couples barely able to afford a 1-bedroom flat. One would have though there to be an inevitable correction and re-ordering to bring things back into line.