Speaking at the Tenet Business Conference at Lancaster Hotel in London, he predicted major shifts in the sector, whether by inflation or a housing market crash.
Bootle said: “Somewhere out there in the future; three, four or five years’ time, we are going to have one of two events.
“We’re either going to have a housing market crash – big falls in house price sustained over time to get this ratio back to normal.
"Or the government is going to preside over a period of higher inflation, including higher wage inflation, accompanied by a weaker exchange rate in order to bail the market out and restore this relationship without house prices falling."
Bootle discussed the ratio of income spent on mortgage payments, which is currently only just below the long-term average, and said this was concerning given the low base rate of 0.5%.
“What do you think it will be like when there are normal rates of 5% or 6%?
"Mortgage rates will be 7%, 8% or 9% and it will look rather different, a lot of people would find themselves incapable of servicing their mortgages at that sort of level of interest rates.”
He added that the government has thrown everything except the ‘kitchen sink’ at this market, probably due to the coming election.
Bootle was also sceptical about the prospect of a housing shortage.
“If all that was right you would expect to see substantial pressure on rents – the ratio of rents house prices is extremely high.”
He argued that when interest rates return to a normal level the average affordability; meaning the percentage of an individual's income paid out on a mortgage, will return to a lower level.
Bootle said: “We are going to see earnings rising above the rate of inflation for the first time in many years.”
The economist dismissed quantitative easing as a cause of inflation in the market, stating that people should instead worry about whether the government or central banks want inflation.
“Do they come to believe inflation is part of the solution, not the problem? If they do, they’ll get it.”
