Monday, February 26, 2007
Houses still affordable in the UK?
The UK housing market looks set to continue to be supported, even at these elevated levels, primarily due to housing still not having reach unaffordable levels experienced in the past. Additionally, the strong growth in the money supply and continuing immigration continues to support the market. Even an expected interest rate rise to 5.75% is unlikely to affect the situation significantly. It would require an interest rate hike to well beyond 6% before we are likely to witness a significant house price decline in the UK. This would be preceded by inflation taking off beyond 3% CPI, and would be associated with a decline in economic activity.