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.

House Price Growth Slows

House price growth in the UK has slowed in the past couple of months. Evidence suggests that recent interest rates are beginning to effect consumer spending.

Related to the fall in house Prices. The number of mortgages approved fell for the third month in a row. Mortgage approvals totalled 107,000 in April, down from 111,000 in March and the third monthly decline in a row.

Reports suggest, however, that further interest rates are still likely. This is because retail inflation is picking up. The CBI added that the sustained growth in sales volumes had encouraged a rising balance of retailers to put up prices compared with a year ago. The balance of +33 was the highest since May 1998.

Rate rise likely