House price inflation will slow sharply in the next two years, according to the latest inflation report from the Bank of England.
The report says the factors which keep the housing market buoyant are subject to great uncertainty. Although there are reasons to suppose the ratio of house prices to earnings might remain higher than in the past, it is hard to believe it can account for the full extent of recent rises.
It concludes that house prices are likely to rise more slowly than earnings.
The MPC predicts house price inflation will slow significantly over the next two years although prices may continue to rise strongly in the near term. Its report reveals that the first quarter of 2004 saw a rise in house price inflation and says housing market activity indicators point to continuing buoyancy in the near term.
Speaking at a press conference last week, Bank of England governor Mervyn King said: “In the committee's central projection, house price inflation slows sharply during the next two years although house prices may well continue to rise strongly in the near term. That is likely to mean that consumer spending will continue to grow strongly for a while but then ease as the growth in disposable incomes and house prices moderates.”