House prices set to slow down
16 Nov 07

The housing market has been quite strong but Nationwide is forecasting a significant slowdown. This time next year house price inflation is predicted to be 0%, down from the current 9.7%.

This is one of the factors that I will have to take into account in making a decision for the Target 2.0 Bank of England Competition, where we have to take on the role of the Monetary Policy Committee. The rate of house price increases has a big influence on consumer spending, and such a significant slowdown will have a negative wealth effect.

Nationwide points out a slowing economy, growing affordability problems, tighter credit conditions and lower buy to let demand as an explanation to their prediction.

Intervention on the side of the Bank of England to lower rates (which I predict will happen in January and February both by a quarter point), will provide some support to the price growth, but will not prevent the slowdown significantly.

Links:
House prices face 2008 slowdown – BBC News (16 Nov)