Economic pundit says housing market is heading for a crash

A leading economic forecaster yesterday warned that the housing market is heading for a crash unless the value of homes starts to slow.

Roger Bootle, manager director of Capital Economics, said that this year's forecast growth of 15 per cent is unsustainable and that the housing market is "heading into dangerous territory".

"It is looking severely overvalued and if we carry on like this I would forecast a crash," he said.

Mr Bootle, a well-known voice of caution on the future of house prices, basis his analysis on the cost of buying a property compared to earnings.

He told a conference of building society and mortgage lenders that the ratio of house prices to earnings is approaching the dangerous territory it reached during the late 1980's housing boom, which was followed by a crash that plunged buyers into negative equity.

The ratio of house prices to earnings, which stands at 4.5 times, according to a Nationwide Building Society, is as high as the second to last peak in the market, in the early 1970s.

Mr Bootle predicts the Bank of England will not try to slow prices by increasing interest rates, leaving the alternative of either a crash or a more gradual slow down.

He predicted property prices would turn towards the end of the year, after continued growth for the next few months.