Inflation eases further

Halifax has recorded the slowest rise in house price inflation this year so far for May, indicating that a gentle slowdown in house prices is taking place. Prices increased by 0.3% last month, which is the third consecutive slowing in inflation, bringing the annual rate of increase to 10.6% from a peak of 11.1% in March. The report also says that buyer interest in properties fell for the fifth consecutive month, and the volume of mortgage approvals awarded fell also. However, solid economic conditions and high employment are boosting the market, as the economy continues to grow, making the likelihood of any downward spiral in prices extremely unlikely. Halifax now expects house price inflation to moderate over the remainder of the year as real earnings growth also slows: ?Higher interest rates, the negative trend in real earnings growth and rising food prices are likely to bite increasingly on householders? finances over the coming months, curbing housing demand,? said Halifax chief economist Martin Ellis. ?House price inflation is expected to moderate as a result. The market, however, remains supported by solid economic foundations which, together with supply shortages, will continue to support prices.? Seema Shah from Capital Economics said these results confirm their prediction of a slowdown in the market by the end of the year: ?With interest rates likely to hit 6% this year, putting further pressure on affordability, mortgage demand will weaken further. Overall, this will only add to downward pressures on house prices. As such, our forecast of markedly weaker house price growth by end-2007 remains firmly on track.?