Most regions of the UK are already in a house price bubble, threatening falling house prices, negative equity and a return to recession when interest rates rise, an economics professor has warned.
Professor James Mitchell of Warwick University said 10 of the 13 regions in the UK are currently overvalued compared to incomes.
"The results raise the risk, although not the certainty, that house prices will fall," he said.
Prof Mitchell admitted it was difficult to say when that would be. "But a bubble it appears to be and we should all - householders, business people and policymakers alike - be alert to this risk.
“This raises the spectre of falling house prices, negative equity, bad assets on banks' balance sheets and a return to the so-called great recession.”
His warning follows recent calls by economists for the Bank of England to act now to cool the housing market.
Prof Mitchell, head of economic modelling and forecasting at Warwick Business School, analysed house price and incomes data from the UK's largest mortgage lender, the Halifax.
He defined a bubble "as a time when prices exceed fundamentals, or when price exceeds value".
London is the most overvalued region, with a 93% probability that it is in the grip of a house price bubble.
Wales is the next most overvalued region, with an 83% chance of a bubble, followed by north-west England with 80%. The UK as a whole scores 77%.
Prof Mitchell said Scotland and Northern Ireland were unlikely to enter a bubble phase, and the chances for eastern England were "evens".
He was particularly gloomy about what will happen when interest rates finally rise.
At that point, household and bank finances would be "stretched to breaking point".
Prof Mitchell was previously a senior research fellow with the National Institute of Economic and Social Research for 12 years.
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