IF yesterday's package of measures won't do much to help the housing market, what will? And if we let house prices fall to their "equilibrium level", how much lower will that be?
A peak to trough average fall of between 20 and 25 per cent is the current consensus. But according to a chart put together by Tom Fischer of Herriot-Watt University which plots the long term relationship between house prices and gold, we could be in for a further 75 per cent fall. Yes, it's not a mis-print - 75 per cent..
First, the market reaction to yesterday's measures from the UK government. Such reaction is by no means an infallible guide. But with traders having had time overnight to consider the measures to help the housing market in detail, that reaction is none too reassuring.
The broad FTSE100 Index of Britain's top companies is down more than a hundred points, or 1.95 per cent.
And looking closer, some of the biggest casualties this morning are in the very sector that was targeted by the Brown/Darling package.
Housebuilder Barratt was down 14p or 8.6 per cent. Taylor Wimpey dropped 7.4 per cent. And the "rally" has stalled in banking, with shares in RBS and HBOS (Britain's biggest mortgage lender) each down by 3.5 per cent.
This reaction is more worrying for another reason. The big story yesterday was the sharp fall in the oil price. Brent crude fell to $108.24 and has fallen further to $107.07 a barrel this morning. US crude has settled below its 200-day moving average, a key technical level, for the first time since May 2007. The oil price has now fallen more than $7 since Friday after Hurricane Gustav proved to be less devastating than feared. Analysts say slowing oil demand in the United States and other consumer nations will continue to depress prices, which have dropped from a record of 147.27 on July 11.
But far from stock markets surging further at the prospect of falling inflation, the reaction is altogether more apprehensive. Traders are looking behind the oil price fall for the 'prime mover' - and wherever they look round the world, it's the same: slowing demand, and slowing growth.
Says Robert Nunan, a risk management executive at Tokyo-based Mitsubishi, "It's the economy, economy, economy. Everyone's worried about demand destruction."
Falling oil is the most direct pointer to the pulse of the world economy - and that pulse is slowing. So if there is any cushioning as a result of yesterday's measures by the government - still less a recovery - the market is seeing little sign of it. It's much more concerned about the bigger picture. And it is ominous that the much enhanced prospect of lower interest rates is not setting stock markets alight as many had hoped.
So how far might UK house prices still fall? If you're about to sell, you don't want to look too closely at the long term chart here, which plots the relationship between gold and UK house prices.
Here is an update of a chart that market commentator Dominic Frisby has posted on today's Money Morning website. It shows how many ounces of gold it takes to purchase the average UK house since 1930, put together by Tom Fischer at Herriot-Watt.
The chart shows prices rising during periods of credit expansion and declines during periods of contraction. Nothing Alistair Darling does, argues Frisby, can change the inevitability of further falls. He has two choices: to simply let prices fall to the point where houses have become affordable again; or, the option he appears to have taken, which is to devalue sterling, so the falls don't seem so bad. But the net result – the real value of houses - will be the same.During the 1930s and the late 1970s it took one hundred or less of gold ounces to buy the average UK home. That would mean another 75% fall from here, measured in gold.
Making allowances for a further sharp fall in sterling and a further rally in gold, and it's not totally impossible - though in my view highly unlikely - that prices will fall that far. But it is telling that predictions a year ago that house prices would fall by 20-25 per cent were dismissed as alarmist. Now they are the consensus - and with some 'respectable' economists such as Michael Saunders at Citigroup, saying the fall peak-to-trough could be nearer 30 per cent.
The best advice for first time buyers now? And all those looking for a stock market recovery? Wait.