What a Fall in House Price Inflation Means

There is a very important difference between falling house prices and a fall in house price inflation.


Quite often newspaper headlines may lead with a phrase like:

"Housing Boom over: dramatic fall in house price inflation"

This means that house prices are now increasing at a slower rate. For example, rather than increasing at 12% per year they are now increasing at only 4% a year. However, at first glance it may appear house prices are falling. If house prices are rising at 4% it is still higher than CPI inflation, and therefore, the real cost of housing is still rising.

A fall in house prices means a negative house price inflation rate.

A fall in the house price inflation rate, doesn't necessarily mean an end to the housing boom. For example, in the recent decade the rate of house price inflation has fluctuated, but the average house price has continued to rise all the time.