Regular readers of these Nethouseprices columns will recall a recent article discussing suggestions that house prices in the UK are "on the brink of collapse". While we recognised the impeccable credentials of the London School of Economics (LSE) academics who prompted the headlines and didn't entirely dismiss their predictions, we emphasised that their views aren't currently shared by the vast majority of housing economists, who continue to maintain that a gentle slowdown is the worst case scenario and that, for various reasons, modest house price growth is the most likely outcome for the remainder of this year. Since this feature, however, Halifax has published its latest house price index which found that prices fell by 1 per cent in June. A number of newspapers linked this news with the LSE research, claiming that the latter was proving remarkably prescient. Are these sections of the press correct? Do the Halifax figures support the idea that the housing market is poised to collapse?
Halifax House Price Index
The building society's latest index showed that:
- House prices in the UK fell by 1 per cent in June. Analysts had expected growth of 0.2 per cent.
- The average house or apartment in this country now costs some £218,390.
- Prices fell on a rolling quarterly basis by 0.1 per cent.
- Prices in the quarter to June were 2.6 per cent higher than at the same time last year, down from the 3.3 per cent growth recorded in the three months to May.
- Estate agents are reporting that new instructions have declined for the 15th consecutive month.
- The number of first time buyers entering the market in the first half of 2017 reached an estimated162,704.
There are several important footnotes to these statistics. Firstly, Halifax bases its index on its own business activity which can, of course, be subject to volatility, so it always needs to be read in conjunction with the other major house prices indices. Secondly, it isn't unusual for its findings to differ - occasionally dramatically - from those produced by other agencies. Just to exemplify, Halifax's competitor lender, Nationwide, actually found that prices grew by 1.1 per cent in June. These caveats aside, though, how do we interpret the latest Halifax index?
Martin Ellis, housing economist with Halifax, said that the index showed that the market had "flattened." He attributed the sluggish activity to two factors:
1) While the jobs market is proving remarkably resilient, wage growth has been curtailed. Accordingly, recent rises in consumer prices - general inflation stands at 2.9 per cent - are putting pressure on household finances.
2) The changes in the tax regime affecting investment properties have dampened demand.
Mr Ellis, who has consistently forecast growth of between 1 and 4 per cent this year, doesn't seem to take the view that the index signals the start of a serious decline or "crash". He says that the prevailing low mortgage interest rate climate and the UK's shortage of homes for sale should continue to support prices in the coming months.
His counterparts at other organisations took a similarly sanguine view of the study. Samuel Tombs of Pantheon Macroeconomics, for instance, stated that he didn't think prices would continue to fall. Rather, he argues, the market seems to be flattening.
Meanwhile, Hansen Lu of Capital Economics said that he didn't believe the index was a harbinger of a crash but that he also didn't envisage prices rising to any significant degree. Even allowing for recent price modification, the cost of residential real estate remains high and is curbing demand. He anticipates growth of around 2 per cent this year.
Finally, property expert Russell Quirk said that people calling this "momentary blip" a trend were doing so prematurely.
It's difficult to argue with the main school of thought, namely that the market is unquestionably cooling but that rumours of its full demise are being greatly exaggerated. The features of the UK housing sector identified by Martin Ellis as buoying prices - low interest rates and a lack of supply - look set to remain in place for the foreseeable future. Certainly, to date, the Bank of England's Monetary Policy Committee has given no indication that it plans raising its base rate this year and ongoing competition between mortgage lenders tends to point to a continuation of the so-called "mortgage war." Equally, as ambitious as the government's house building programme might be, it isn't likely to materialise quickly so, the shortage of homes will remain an issue for some time. The combination of inexpensive borrowing and a lack of supply in the housing market should provide the softest of landings for prices.
The other point worth highlighting is that the period covered by the Halifax index was a time of great political uncertainty in Britain, with the seemingly endless Brexit saga continuing to exercise the great and good of our national life and the snap general election producing further disruption. It's conceivable that these problems contributed to the subdued market. We seem to have turned the corner on this instability - at least for the time being - so we might see a return to (probably unspectacular) growth.
We are expecting the publication of the Royal Institution of Chartered Surveyors house price balance and the Office for National Statistics index during the next few days and will, of course, assess these to see if they add any clarity to the picture or point more firmly towards a trend.
On a Lighter Note
As highlighted above, the extent to which house prices are affected by elections is a rather contentious issue. But it seems that there is a demonstrable link between house prices and the outcome of elections. Market Oracle says the housing market may be a more reliable barometer of politics than the various polling company surveys: http://www.marketoracle.co.uk/Article59604.html
Visit the team here at Nethouseprices again soon for the latest news about the UK property market and for commentary and analysis of the issues affecting you, your family and your investments.
You can also sign up to our newsletter and join Nethouseprice’s community of over 190,000 members who get regular property tips, relevant offers and news, click here http://nethouseprices.com/auth/user-register