|
What's happening to house prices?
Sarah Modlock
16 March 2006
Aah... how dull life would be if we didn't have house price fluctuations. I mean, what would people discuss at dinner parties? Plenty to bore your friends about at the moment as the industry pumps out lots of interesting figures. There is also a report from the Office of the Deputy Prime Minister (ODPM) - he of Council Tax fame.
The latter reveals that UK house prices are accelerating. The ODPM's latest monthly survey of new mortgage loans shows that prices rose by 4.3% in the year to January - higher than the 2.9% rate recorded in December and is the highest since the middle of last year. These results echo recent studies by the Halifax and Nationwide which have reported that prices are picking up. The ODPM says prices have now risen by 3.1% in the past three months, pushing the average house price up to (first time buyers look away now) £188,191.
Going up?
House price inflation in January was positive in all regions of the country, the first time this has happened since July last year. But the increases were not uniform across the country. England saw prices rise by 2.1% in the year to December, but by 3.7% in the year to January. Wales also saw an increase, with inflation hitting 6.4% in January, up from 5.1% the previous month. It was a different story in Scotland where house price inflation dipped to 10.5% from 10.9% in December, while in Northern Ireland the level fell from 12.9% to 12.5% in January.
But if January saw strong increases, then February was more realistic. Nationwide says that house prices fell back by 0.2% last month but the trend over the last six months is still strong, making interest rate cuts less likely in the short term. The society adds that traditionally buyers return back into the market in the spring but weak economic factors make this look less likely this year
Demand for property is running well ahead of supply according to housing research company Hometrack. 'A key driver of higher house price inflation over February has been a surge in the number of new buyers coming into the market,' comments Richard Donnell, Director of Research. Nationally, the number of buyers registering with agents rose by 26% over February. The strong end to 2005 saw agents sell a significant amount of stock. They have started the year short of stock. As the supply of homes for sale is not keeping pace with demand so we are seeing the strong rise in average prices. This trend is most obvious in the southern parts of the country where the greatest imbalance exists.
What the experts say
Greg Fuzesi, Nationwide's Senior Economist : 'House prices fell by 0.2% in February following a strong 1.5% increase in January. The average house price in the UK is now £158,578, 3.7% higher than at this time last year. The continued rise of our 3 month average since October 2005 still shows strength in the market and, significantly, this discouraged the MPC from cutting interest rates in February. As we enter the all-important house buying season in March, the prospects for both house prices and interest rate policy will become clearer. It will also show whether February's fall is just a pause before the spring rush or the first sign of weak market fundamentals weighing down on prices. We expect the weaker economic factors to begin to dominate over the next 2-3 months and to prevent strong house price rises in 2006.'
Martin Ellis, Chief Economist of the Halifax : 'The combination of improving economic growth, low interest rates and high employment will continue to underpin a healthy level of housing demand over the next few months. A number of factors, however, should constrain housing demand and prevent a significant, and sustained, acceleration in house price inflation in 2006. The continuing high level of house prices in relation to earnings will curb the ability of many potential first-time buyers to enter the market. Council tax and utility bills increases of well above inflation in 2006 will also put downward pressure on householders' finances. Additionally, the weakening in the labour market should temper housing demand.'
Duncan Pownall, mortgage development manager for Bradford & Bingley : 'This months figures, a third higher than January 2005, demonstrate that despite the traditional seasonal market slowdown borrowers are confident that the ‘slump' will not materialise. As house prices grow and interest rates remain stable borrowers are choosing to act now. The strong levels of fixed rate borrowing may indicate that borrowers are stretching themselves happy that their payments will remain fixed at a manageable level.'
Michael Coogan Council of Mortgage Lenders (CML) Director General : 'Mortgage lending in all categories has been strong in recent months. This reflects the fact that consumers are feeling more certain about the future of the housing market and confident that house prices are unlikely to fall. The interest rate outlook for the near future is for stable rates. Our recent figures show that the majority of new borrowers are taking out fixed-rate loans to provide payment certainty at affordable cost. The mortgage market looks set for continued steady growth against a backdrop of pretty positive economic conditions.'
Richard Donnell, Director of Research at Hometrack : 'Prices are likely to continue to rise over the next month or so as a result of buyers returning to the market and supply remaining limited. Most of this growth is likely to be concentrated in southern parts of the country. The key issue is whether the momentum of the first few months of 2006 can be maintained, especially after the strong end to 2005. Much hinges on the outlook for interest rates, the strength of the economy and the direction of consumer confidence. A period of improved market activity was always inevitable after the lengthy slowdown between mid 2004 and mid 2005 but the reality is that housing remains fully valued across much of the country. We expect values to keep rising, but the scale of growth over the later parts of the year is set to be far more modest than what we are currently seeing in a supply constrained market'.
Annual house price inflation - January 2006
UK : 4.3%
England : 3.7%
Wales : 6.4%
Scotland : 10.5%
Northern Ireland : 12.5% English regions:
North East: 7.6%
North West : 4.4%
Yorks & Humber: 9.3%
East Midlands : 0.8%
West Midlands : 4.8%
East: 2.3%
London : 5.3%
South East: 2.4%
South West: 0.7%
Source: ODPM
| 