Will I, won't I join the property dance?

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Whither house prices is a practical question for me at the moment, not just an interesting financial conundrum which I enjoy writing about.

Whither house prices is a practical question for me at the moment, not just an interesting financial conundrum which I enjoy writing about. My wife and I, having become what are called "empty nesters", have just sold our family house in London, where we have lived for 22 years. More precisely, we have exchanged contracts and completion will take place shortly. We have begun to look for a flat in the same district.

Thus we held to the rule that one should sell first and be prepared to go into rented accommodation while seeking out the new place. We reasoned that if we started our search too early, we might find somewhere we liked very much and weaken our resolve obstinately to wait until a good offer was made for our existing home.

In the London market, too, it is sometimes critical to move swiftly when buying. Having the cash already in the bank enables one to do this. However, when values are shooting up while we look, as they appear to be, this may not be such a good policy. We shall shortly find out.

Moreover I make this all the more agonising for myself by half believing that right now may be the top of the market and that if we bravely hold back, prices will fall in due course. Then we would be able to sell high and buy low and pull off a financial coup which even the Rothschilds would admire. One reason for bearishness is that British house prices are at the top of the world league.

Tokyo used to be the most expensive property market. However, on a recent visit there to see family, I was able to compare London and Tokyo precisely, calculating price per square metre in the two cities and making allowances for variations in the popularity of different areas. Tokyo prices, now in their 11th successive year of decline, have fallen below London. Note the 11-year tumble; that is what happens to overblown markets. I have also been looking closely at Paris, where we are renting a small flat.

Parisians look up to the heavens or roll their eyes or give their trademark shrug of the shoulders when discussing property prices. Values are high. Yet the fact is that Paris prices are about 60 per cent of London levels. And as far as I can see, what goes for the comparison between capital cities also goes for the countries as a whole. And while one can find technical explanations for these differentials, I don't think they carry any conviction.

I would believe in high British prices if we were the richest country in the world and the best at generating wealth. But we are not.

Moreover, house prices are out of kilter with financial markets generally. Stockmarkets remain subdued if not sickly. The bursting of the technology stocks bubble has had negative consequences for longer than was first envisaged. Only gold and British house prices are sparkling. Does this tell us something? Gold is an investors' refuge in times of great uncertainty – or looming war. Is that what residential property represents to us? Do we still have a Forsytian faith in bricks and mortar as the ultimate security?

Nonetheless, one can see that the mechanism which would generate a fall in house prices is, so to speak, ready and waiting. I refer to the considerable amount of residential property which has recently been bought as an investment in the rental market. I doubt if this has happened on such a scale since the 1930s. After 1945, housing legislation favoured tenants at the expense of owners. Landlords were driven to use heavy handed methods and these lead to scandalous behaviour in the early 1960s, what was called Rachmanism, named after a notorious exponent.

Then, gradually, the poison in the system was drained, new legislation restored a fair balance between the rights and duties of both landlord and tenant and finally, after a long delay, a sensible market has re-started. People have rushed into it enthusiastically, indeed on such a scale that an excess of rented accommodation has been created and rents have begun to fall.

When interest rates rise, these new, inexperienced investors will find themselves squeezed. They will sell and lead the whole market down.

If I were writing this article as a disinterested observer, I would put down my pen at this point and think no more about it. This time, though, I have to act. I am in the middle of a property transaction. And I already know that I am not going to hang around for long in rented accommodation and follow my hunch that residential property prices will shortly fall. For I am unprepared to run the risk that my purchasing power would decline if values were to rise further.

The old truism that greed drives bull markets and that fear sends prices ever lower isn't quite right. For it is fear of being left out that makes me turn every page of local magazines full of glossy property advertisements, call the estate agents and rush round to another viewing. We've got to buy that flat.