14 Jul Whats in store for the UK housing market?
It’s slow going but the experts predict muted but continued growth.
The UK’s housing market has been the subject of intense scrutiny this year, with affordability stretched in some areas, prices dropping in others and fewer homes changing hands. There are fears we are on the cusp of a house price slump. It’s a complicated picture, so we wade through the data to explain what’s really happening.
How have house prices changed?
A range of indices shows that house prices UK-wide are rising, but at a muted pace.
The average house price rose by 2.4 per cent in the first quarter compared with last year, according to the Halifax. That is the slowest rate of growth since May 2013. The bank says the figures suggest there is a “sustained slowdown”.
Tim Moore, a senior economist at IHS Markit, which compiles data for Halifax, says there are signs the weakness in London property prices has spread to commuter areas beyond the M25. “Property prices across the wider southeast are increasing at the slowest annual price since the end of 2012. This weaker trend is not exclusive to the capital,” he says.
Where are the best-performing areas?
The overall figures mask wide regional variations. The area of fastest house price growth over the past three months has been East Anglia (up 5 per cent year-on-year), according to Nationwide. The weakest region has been the north of England, the area that includes Newcastle, Sunderland, Co Durham and Middlesbrough, where prices rose 1.1 per cent. London house prices were the second-worst performer, up 1.2 per cent.
This spring was the first time in eight years that house prices in northern England, including the west and east Midlands, the north, northwest and Yorkshire, outpaced the south of the country. Prices rose 3.3 per cent compared with 2.6 per cent in the south. “There has been a shift in regional house price trends. Price growth in the south of England has moderated, converging with the rates prevailing in the rest of the country,” says Robert Gardner, the chief economist at Nationwide.
What about the forecast of a 40 per cent decline in prices?
Paul Cheshire, professor of economic geography at the London School of Economics, says that a house price correction, or significant fall in prices, is likely within the next two or three years. This is partly because house prices have risen so far beyond average incomes, while “real” incomes, which take inflation into account, have begun to stagnate. He says: “With Brexit, where you have foreign exchange risk as well as an asset price risk, if house prices start to fall, London real estate may be seen as a less attractive place to park money.” Although Cheshire was reported as predicting a 40 per cent fall, he says this is unlikely and expects positive house price growth over the next 15 years.
Will the slowdown continue?
Cook says that he expects the market to slow over the coming months. “A lot of this comes down to sentiment in the market rather than economics. It is about how confident buyers are and how aggressive they want to be in bidding.” Estate agency stock levels are at all-time lows, while new buyer inquiries have fallen in the past six months. The wider trend suggests further weakness in house prices is ahead, according to the RICS UK Residential Market survey.
Affordability remains an issue, as the average house costs seven times average earnings, according to Capital Economics, compared with an average of 3.5 times in 1996. Yet buyers are supported by record-low interest rates on mortgages. The cheapest two-year tracker is 0.89 per cent from Yorkshire Building Society. Hansen Lu, a property economist at Capital Economics, says the number of repossessions that would cause a sharp fall in property prices has not occurred. “We are not seeing the forced selling that would drive prices down. We are not expecting a sustained decline in house prices.”
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