House Values Rise Again – But Only Just
A New report shows that, while house values have increased for the fifteenth month in a row, the rate of growth slowed dramatically in July, adding weight to the growing consensus that the housing market is cooling.
A report released by Halifax today shows that average UK house values rose by just 0.1% in July. This represents the smallest month on month increase since house prices began to rise fifteen months ago.
Annual house price appreciation, which is widely considered to be a more reliable measurement than the notoriously volatile monthly figures, is still in double digits. But only just. The national average cost of buying a home in July was 10.6% more expensive than in the same month last year. As annual house price growth was 11.8% in June, this represents a decrease of 1.2% since last month.
While most economists believed the market would begin to slow due to a number of wider economic factors, such as the new MMR rules and threats of impending interest rate rises, it seems to be occurring at an even more rapid rate than most expected. A recent poll of market experts conducted by Reuters revealed the general consensus to be that house values inflation would slow to 0.5% this month, rather than the 0.1% indicated by Nationwide’s results.
Several recent reports have presaged a cooling period in the market. Nationwide’s Chief Economist Robert Gardner said that the:
“slowdown was not entirely unexpected, given mounting evidence of a moderation in activity in recent months. Mortgage approvals declined by almost 20% between January and May, and there has also been some softening in forward looking indicators, such as new buyer enquiries.”
However, Mr Gardner went on to state that the modest rebound in the number of mortgage approvals displayed in June served as evidence that the slowing of the market caused by the Bank of England’s new, tougher macro-prudential policies would only prove temporary and the pace will soon pick up again as the new rules bed in.
“With the labour market strengthening, mortgage rates expected to remain low and consumer confidence rising, activity is likely to recover in the months ahead.”
Nationwide’s statistics also show that the average house price across the UK now stands at £188,949, the highest average total ever.
The fact is that, no matter how much the government or the Bank tinker with the housing market, if supply is not drawn more broadly in line with demand, prices will inevitably continue to rise.
Ever increasing house values, driven by an inherent lack of supply due to inadequate levels of construction of new stock, form the subject of a speech to be delivered later today by Shadow Housing Minister Emma Reynolds.
She will claim that average house prices will be 13 times the national average wage by 2020. She will further claim that the cost of the average UK house will reach £359,000 by the same chronological threshold should current market trends continue. If it transpires that her predictions are accurate, the average UK house buyer will need a deposit of around £72,000 to buy a property in the future.
Ms Reynolds will further claim that the government’s Help to Buy scheme is representative of the fact that they:
“simply haven’t understood that boosting demand without boosting supply will simply see prices pushed out of reach of families and young people.”
Nationwide’s report generally concurs though, as per usual, the blame game that defines the partisan political system under which we live is less than helpful.
Mr Gardner added that:
“Over the longer term, the trajectory of house prices will remain crucially dependant on supply side developments. While there have been some encouraging signs that construction activity is picking up, the pace of home building continues to run far below most estimates of what would be required to keep up with household formation in the years ahead.
“A modest recovery in the number of housing transactions, a pick-up in house price growth and the introduction of higher stamp duty rates on more expensive properties have all contributed to a sharp increase in stamp duty revenues in recent quarters, the majority of which is paid on residential property transactions.
“Indeed, stamp duty revenues are near the all-time highs recorded in 2007/08, reaching over £10 billion in the twelve months to June 2014.
“Variation in house prices have a strong impact on how much stamp duty is paid across different regions of the UK, with some regions contributing a much greater share of the total stamp duty revenues than their share of housing transactions might suggest.
“We estimate that London contributed around 42% of the total stamp duty paid on residential properties in 2013/14, even though the capital only accounted for c.15% of house purchase transactions. This largely reflects the substantial (and growing) gap between house prices in the capital and the rest of the UK, where the typical London home now costs more than twice the national average.
“By contrast, the North West, where the price of a typical house is well below the national average, accounted for 3% of the total stamp duty paid, markedly less than its 10% share of property transactions.”
The regional variegations in the market are nothing new. The recent housing boom has been as pronounced in London as it has been inconspicuous in other areas.
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