The property market has been running at 1,000 miles per hour for more than a year. But in July the disappearance of stamp duty holiday savings triggered a drop in transactions to 22pc below normal levels.
Demand is calming, the end of the moratorium on mortgage repossessions has lifted, and high inflation is a threat to low interest rates. How quickly could the market turn?
The stamp duty holiday brought a fever to the property market, but it was not the key driver of price growth. Broadly speaking, analysts attribute the current house price rises to two factors. First, a shortage of homes has brought an extreme imbalance between supply and demand. Second, this demand is underpinned by affordability, which is driven by low interest rates.
The short-term indicators for both of these factors are strong. But few economists expect these circumstances to last long-term. Here, we take a closer look at the datasets that will predict when the tide could turn.
The threat of inflation
“I think the major risk to the housing market is the widely anticipated impending rise in inflation proving more persistent than economic forecasters expect,” said Mr Wishart. If this happened, the Bank of England would need to raise interest rates quickly in response.
“That would cause mortgage servicing costs to rise to a more concerning level, and point to a period of weaker price growth or even a drop in house prices,” he said.
Kay Neufeld of the Centre for Economics and Business Research, a consultancy, said: “There is talk of inflation getting out of hand, and in a year’s time that could mean the tightening of monetary policy just as the economic recovery is maturing. That is where we see potential problems.”
Analysts do not expect interest rates to rise quickly. CEBR expects the Bank of England will raise the Bank Rate from 0.1pc to 0.25pc in the second quarter of 2022, followed by a rise later in the year to 0.75pc.
Rising mortgage costs will hit buyer demand, and buying power, said Mr Neufeld. “That will tip house prices into correction territory.” CEBR has forecast a 2pc drop in house prices by the end of 2022.