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Property market: prices slip in April, says Halifax

In concluding our coverage of the latest Nationwide index, published last week, we mentioned the ongoing controversy surrounding the reliability of the commercial studies of house prices in the UK. At issue is the fact that the building societies base their findings on their own mortgage approvals, a methodology which has two important limitations. Firstly, all businesses have spells when their own performance doesn't reflect trends in the wider market. Secondly, the approved mortgages measure doesn't track house sales through to their eventual completion. 

Critics are also apt to point out that Britain's biggest lenders - Nationwide and Halifax - both produce house price indices and they almost never paint the same picture of health of the housing market, an inconsistency which appears only to underscore the limited value of the organisations' output. As we said in that article, we do understand and even share some of these reservations, but we do think that they are overstated. These lenders approve thousands of mortgages each month and are therefore key to the functioning of the property sector. Even if their respective indices are more snapshots of their own business than of the sector at large, they are important contributions to our understanding of the direction of sold property prices. Accordingly, we awaited the Halifax index for April with our customary impatience and found it as fascinating as ever.

Halifax HPI for April: the headlines

Halifax reports that:

- House prices in the UK are rising by 2.2 per cent on an annual basis, down from 2.7 per cent in March.
- The average cost of a home dipped by 0.1 per cent in the quarter to April, the same drop as was recorded in March.
- Prices fell by 3.1 per cent in April. In contrast, they increased by 1.6 per cent in the previous month.
- The average price of a home in the UK is now £220,962.

Russell Galley, Managing Director of Halifax Community Bank, said that the annual and quarterly figures, which are significantly less volatile than the monthly measure, highlighted the softening of the sector in recent months. Going forward, he said, the strength of the jobs market and rising wages should support house price growth of up to three per cent this year. 

Reaction

As usual, various housing analysts were asked for their views on the latest index and the consensus seems to be that we can expect more of the same in the near term. Howard Archer of the EY Item Club, quoted in several newspapers, said that the monthly figure was the worst since September 2010. True, he concedes, most observers had expected a slight "correction" from March - when Halifax was virtually alone in reporting growth - but few had foreseen quite so sharp a decline. The monthly measure is notoriously volatile, but it follows a longer period of at best sluggish growth. In his opinion, there will be no appreciable improvement in the coming months and a fresh hike in the Bank of England base rate might further impair the market. 

Jeremy Leaf, former Chairman of the Royal Institution of Chartered Surveyors and a leading expert on the UK property sector, said that the index was clearly disappointing, even though we are still seeing growth on the all-important annual measure. April, however, is usually the beginning of house-buying season and it tends to establish the tone for the balance of the year. Nonetheless, if interest rates remain unchanged, we might conceivably see an upswing in activity, with buyers taking advantage of the continued availability of cheap mortgages.

Jonathan Samuels, Chief Executive Officer of Octane Capital, said that the property market was simply mirroring the wider economy and "idling along." Inflation is falling and wages are rising, conditions which should ease pressures on household finances and ultimately boost house prices. This won't happen overnight, though. 

Samuel Tombs of Pantheon Macroeconomics, one of the experts we often cite, took to Twitter to point out that the annual and quarterly statistics confirm that the market is broadly flat. The monthly figures are essentially just temporary noise and certainly don't herald a dramatic downturn in sold house prices. In other words, the news isn't great but there are no grounds to panic.

Brian Murphy, of the Mortgage Advice Bureau, was somewhat more upbeat, being quoted in such newspapers as The Independent as having said that two factors might have contributed to the underwhelming figures: the harsh winter and fear of a rise in interest rates. With warmer weather, a couple of bank holidays and the Bank of England looking increasingly unlikely to bump up its base rate, we might start to see an improvement in May and beyond. 

Nethouseprices view?

Assuming that the April slump is as unreliable a measure as the experts suggest, we seem to be in a holding pattern just now, with limited movement - upwards or downwards - in property prices. We have discussed the factors thought to be weighing down the market - from Brexit to affordability - in earlier columns and we won't repeat them here. The real question is: when will the sector start to shake off its current lassitude? Of course, we can't predict when the UK will finalise its exit settlement with the EU or say when the next general election will be held. But, in our view, there are two things that might give housing a much-needed shot in the arm to watch out for in the next few weeks:

1. Improving household finances

This is a slow process, but wages are finally starting to grow in real terms and inflation is slowing. The next set of official figures - due for publication shortly - should confirm this pattern. While this won't produce an immediate uptick in house prices, it will help to stimulate the market.

2. Interest rates

That the Bank of England would raise the base rate in May was widely felt to be a foregone conclusion until a couple of weeks ago, but a series of poor economic results has intervened and changed the entire landscape. As mentioned above, some commentators believe that the fear of an increase in interest rates might be partly responsible for the indifferent performance of the housing sector during the past few months. If they are correct in this assessment, the outcome of the vote on the base rate - to be held on Thursday 10th - will be absolutely pivotal. We will be covering the decision later in the week.

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Source: Nethouseprices.com 08.05.18

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