This week’s news brought further signs that the housing market is cooling and could suggest that we are on the cusp of a house price slump. But we doubt that the various indications of softness suggest that a sizeable and sustained downturn is now underway.
Instead, we suspect that the recent weakness is a part of a slowdown in house price growth which will persist over the next few years, as affordability constraints bite. Indeed, given our fairly optimistic outlook for the economy, house prices seem more likely to increase – albeit at a pace below the rate of average earnings growth for the next few years – rather than fall outright.
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