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Prices to slow not crash

The risk of a house price crash is relatively low, according to the latest research from PricewaterhouseCoopers (PWC). It says that the risk of house prices being lower in cash terms in 2010 than today is around 1 in 5, with a slowdown in the rate of inflation much more likely.

The report says that house prices are not in fact overvalued as much as previously thought, due to supply constraints not being taken into account. The most likely scenario on this model is that house prices will continue to rise slightly faster than general consumer price inflation, but well below the double digits of increases seen in recent years. In the longer term, however, the model projects that house prices will continue to rise significantly faster than general consumer price inflation over the period to 2020.

John Hawksworth, head of macroeconomics at PWC, said: ‘There is clearly some risk of house prices falling over the next three years but these risks are mitigated by continuing housing supply constraints. The most likely scenario is for a slowdown in the housing market rather than an outright fall in prices.’

The report also says it expects interest rates to remain on hold in the short term but then fall back next year as growth slows.