I should stress, however, that even if there is some overvaluation, this should not necessarily mean that house prices would fall; the most likely way that the overvaluation would be corrected is via a period of low and stable house price inflation while the economy continues to grow. Bearing this in mind, a soft landing for house prices is the most likely outcome.
Secondly, the strong increases in house prices, along with increasing interest rates, is contributing to a deterioration in affordability in the residential market. This is of concern for two reasons. First, a deterioration in affordability could increase the risk of an abrupt correction in house prices, should the risks I referred to earlier materialise.