- UK house prices seemingly experienced a significantly stronger November after largely struggling in recent months. The Halifax reported prices rose 1.0% month-on-month in November, which was the strongest rise since February. The annual increase in house prices spiked to a seven-month high of 2.1% in November from 0.9% in October (which had been the lowest level since April 2013).
- The firmer Halifax house price data follows the Nationwide reporting an increase of 0.5% month-on-month in November, which was the largest raise on its measure since July 2018. The annual rate of increase on the Nationwide’s measure also rose to a 7-month high in November, although it was appreciably less than the Halifax at 0.8%.
- The Halifax measure has tended to be at the top end of house prices (although much less so since it recently revamped its index).
- The year-on-year increase in house prices on the Halifax measure spiked to 2.1%.
- November’s pick-up in house prices comes despite housing market activity currently faltering amid an unappetising cocktail of Brexit, economic and domestic political uncertainties. It is also notable that while consumers have benefitted from markedly improved earnings growth and rising employment over much of 2019, these fundamentals have recently come off their highs. Consequently, latest Bank of England data show that mortgage approvals for house purchases dipped to a seven-month low in October.
- On the positive side, some support to house prices is coming from low mortgage interest rates and a shortage of properties on the market.
- House prices can be volatile on a month-to-month basis and we would not read too much into November’s pick-up in prices. Indeed, the 1.0% month-on-month rise reported by the Halifax may be partly a correction after falls in both October (0.1%) and September (0.4%). Consequently, house prices were still only up 0.2% in the three months to November compared to the three months to August.
- With the economy largely struggling, Brexit uncertainties extended and the UK political uncertainties currently high, it seems unlikely that the housing market will see any sustained significant pick-up in the near-term at least.
- Should the General Election deliver a decisive result and the UK leave the EU with a "deal" by 31 January, we believe some easing of uncertainties could help house prices rise by around 2% in 2020. Housing market activity – and possibly to a lesser extent prices – could be given a modest lift in 2020 if the government introduces specific measures aimed at boosting the sector in the Budget (although the Conservative’s plans to cut Stamp Duty appear to have been shelved). Low mortgage interest rates and a shortage of properties for sale should provide some support to prices.
- However, the economy still looks set for a challenging 2020 even if there is a Brexit deal – and there will still be appreciable uncertainties, including on the Brexit front – so that the upside for house prices in 2020 is likely to be limited. It is also notable that the fundamentals for consumers have probably peaked at least for the time being, with earnings growth recently easing back from its July 11-year high and employment coming off its record high.
- Should the UK ultimately leave the EU without a "deal", we believe house prices could quickly drop around 5%.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The Halifax surprisingly reported house prices spiked 1.0% month-on-month in November. This was the strongest monthly rise since February (1.5%) and followed dips of 0.1% in October and 0.4% in September – which had been the first monthly falls since May. There was an increase of 0.2% in August.
“Consequently, the three-month/three-month gain in house prices was still limited to 0.2% in November.
“The annual rise in house prices jumped to a seven-month high of 2.1% in November. It had previously slowed to just 0.9% in October (the lowest since April 2013) from 1.1% in September and a four-month high of 1.8% in August. The 2019 high was 2.8% in March.
“The Halifax measure has tended to be at the top end of house prices (although much less so since it recently revamped its index). Latest data from the Nationwide put annual house price inflation at 0.8% in November (after a rise of 0.5% month-on-month) while the Land Registry/ONS put it at 1.3% in September.
Housing market activity currently soft - mortgage approvals dipped to seven-month low in October
“Latest Bank of England data show mortgage approvals for house purchases dipped to a seven-month low of 64,602 in October from 65,803 in September. Mortgage approvals have eased back overall after hitting a 17-month high of 67,060 in July. Mortgage approvals had previously climbed to July’s high from 66,344 in June, 65,558 in May and a 15-month low of 62.622 in March. At 64,602 in October, mortgage approvals were below the middle of the 63,000-68,000 range that has broadly held since late-2016.
“The fact that mortgage approvals fell back in October to be at a seven-month low suggests that housing market activity is currently under increased pressure from a cocktail of major uncertainties (economic, domestic political and Brexit). It is also notable that the labour market is now showing increasing signs of faltering with both employment and earnings growth coming off the highs seen around July. Indeed, the peak in mortgage activity in July coincided when the fundamentals for consumers were particularly favourable in terms of employment reaching a record high in the three months to June and earnings growth hitting an 11-year high of 3.9% in the three months to July.
“Survey evidence supports the view that housing market activity currently remains constrained by uncertainties. In particular, the influential RICS housing market survey reported that its October survey “continues to depict a relatively subdued sales market backdrop, evidenced by negative readings for indicators covering new buyer enquiries, agreed sales and new instructions.” Specifically, the survey showed new buyer enquiries fell for a second successive month – and appreciably in October – after being flat in August and rising modestly in June and July. Meanwhile, newly agreed sales fell significantly, albeit at a reduced rate compared to September.
Outlook for house prices
“House prices can be volatile on a month-to-month basis and we would not read too much into November’s pick-up in prices reported by the Halifax (and the Nationwide).
“With the economy largely struggling, Brexit uncertainties extended and the UK political uncertainties currently high, it seems unlikely that the housing market will see any sustained significant pick-up in the near-term at least.
“There are positives for the housing market – consumers’ purchasing power has picked up appreciably since mid-2018 (real earnings growth improved from 0.1% in the three months to June 2018 to 2.0% in the three months to July 2019 – although it has since eased back to 1.8% in the three months to September). Employment reached a record high in the three months to June (although it has since fallen back).
“Furthermore, mortgage interest rates are at historically low levels. Indeed, there is clearly a real possibility that the Bank of England’s could cut interest rates in 2020.
“Meanwhile, a shortage of houses on the market will also likely offer some support to prices. The latest RICS survey showed new instructions to sell fell for a fourth successive month, and pretty sharply, in October, with declines across all parts of the country; properties coming on to the market had previously broadly stabilised over June-August following 11 months of declines through to May. Consequently, average stock levels on estate agents’ books in October were close to the lowest level in the survey’s history. Meanwhile, even if ultimately successful, the Government’s recent – and ongoing – initiatives to boost house building will take time to have a significant effect so are unlikely to markedly influence house prices in the near-term at least.
“However, the labour market has recently faltered and it looks likely to continue to do so in the near-term at least as companies face a soft domestic economy and an uncertain outlook. Indeed, employment fell by 58,000 in the three months to August. It also looks more likely than not that earnings growth peaked in the three months to July and it eased back in both August and September.
“The housing market may get a modest leg-up should the General Election deliver a decisive result and the UK leave the EU with a "deal" by 31 January. We believe an easing of uncertainties could see house prices rise by around 2% in 2020. Housing market activity – and possibly to a lesser extent prices – could be given a modest lift in 2020 if the government introduces specific measures aimed at boosting the sector in the Budget (although the Conservative’s plans to cut Stamp Duty appear to have been shelved).
However, the economy still looks set for a challenging 2020 even if there is a Brexit deal so that the upside for house prices is likely to be limited. Furthermore, Brexit concerns could pick up again as 2020 progresses due to concerns over what will happen at the end of the year if the UK and EU have failed to reach agreement on their longer-term relationship and the transition arrangement is due to end (both sides have to agree to an extension of the transition arrangement and Boris Jonson has stated that he will not seek an extension).
“Should the UK ultimately leave the EU without a deal, we believe house prices could quickly drop around 5% amid heightened uncertainty and weakened economic activity.”