The key risk on the horizon is a negative shock

Alex Bannister, Nationwide

House prices have risen by 16.5% over the last year, and by 90% over the last six years, Tuesday's report added.

The strength of the market was reflected in a statement from housebuilder Berkeley Group, which reported a 50% rise in reservations.

Property consultancy Savills also on Tuesday reported "firm" residential markets.

Affordability test

Property prices are now almost �38,000 higher than they were at the height of the 1980s boom, the Nationwide said.

But, relative to earnings, homes are more affordable, with the price of the typical house standing at 5.5 times average take home pay, rather than a ratio of seven times seen in the late 1980s.

"If the price of an average property was as highly valued relative to pay as it was in the late 1980s, then it would currently be worth closer to �125,000," Nationwide said.

With mortgage rates typically standing at less than 5% today, compared with 12% at the end of the 1980s, a typical property could cost �160,000 "before mortgage payments accounted for the same proportion of take home pay".

Market threats

The market's greatest threat is economic crisis, such as a collapse in share prices coupled with a new US downturn and fall in the value of sterling, Nationwide group economist Alex Bannister said.

"The key risk on the horizon is a negative shock, leading to sharply rising job losses, and in turn an erosion of confidence with more defaults and downward pressure on prices," Mr Bannister said.

The report said the most likely outcome is for higher interest rates, coupled with slower wage rises, to prompt a "gentle" slowing in the rate of price growth over the next couple of years.

Even in London, where the typical house costs eight times average take home pay, the number of high earners should allow the house market slowdown to be a "relatively slow process".

The Nationwide estimates that 500,000 Londoners earned more than �50,000 a year.

'Strong revival'

Tuesday's statement from Berkeley Group showed the firm has taken 4,500 reservations in the past year, compared with 3,000 in the previous 12 month period.

"Trading in February, March and April has been extremely encouraging," company chairman Roger Lewis said.

The market has recovered strongly from the downturn experienced "after the tragic events of 11 September and continues to perform at the top end of expectations."