An adjustment in the housing market had been envisaged by most economic commentators since housing output was well above the sustainable rate taking account of underlying housing needs for a number of years. Housing investment peaked at around 13 per cent of GDP in 2006, which was well in excess of international norms.
This is likely to reduce to about 7½ per cent of GDP in 2008, which represents a very substantial scaling back of activity. The significant weakening in the housing sector is going to detract considerably from growth this year. Housing output should broadly stabilise during the course of next year, but clearly risks are to the downside.