Economic activity in the second quarter showed growth at the highest rate in almost four years said the Royal Institution of Chartered Surveyors (RICS) in their August economic brief yesterday.

The surveyors said stronger growth and rising household borrowing had reinforced the Bank of England’s (BoE) decision to raise interest rates again in August.

However, the global economic environment has become more mixed in the past month and the surveyors said the Bank of England had detected signs of a slowdown in household activity.

As a result of the above factors, say the chartered surveyors, the likely scenario is that a peak in interest rates will occur at the turn of the year.

As regards the housing market the surveyors say that although some commentators argue the quieting market does not augur well, the economic climate is currently firm, and the supply of property coming to the market remains weak, which are not conditions under which a house price slide is likely.

Housing market comments:

The RICS housing survey for June showed that buyer enquiries had fallen at the strongest pace in more than a year. Moreover, according to the Bank of England, the number of mortgage approvals fell in June to the lowest level since August 2003, having fallen 10% alone since March 2004.

Advocates of the housing crash theory will claim these figures represent the first steps toward house price falls. However, to conclude that lower activity will inevitably lead to falls in property prices is a crude assumption, particularly as the number of mortgage approvals is still at a historically high level.

Indeed, the RICS survey in June indicated that prices continued to rise at a national level despite the slowdown.

Also, although the number of housing transactions has reduced due to a lowering of demand, this does not mean that house prices must fall. This is because homeowners are not necessarily under obligation to sell. The strong general economy, and particularly the strong labour market, means that homeowners are under no pressure to sell at lower prices.

Obviously, if interest rates were to rise more sharply or unemployment to pick-up significantly, then the spectre of rising repossessions would rear its ugly head. However, households have been only slightly fazed by rising interest rates so far, with consumers still in a relatively optimist mood. Confidence over the general economic outlook and household finances has faltered only a touch, which is not a climate under which the demand for housing is likely to erode substantially.