Press release

8 Jan 2020 London, GB

UK house price data surprises with 1.7% month-on-month surge in December

A major upward surprise as the Halifax reports that house prices jumped 1.7% month-on-month in December.

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EY UK

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  • A major upward surprise as the Halifax reports that house prices jumped 1.7% month-on-month in December. This was the largest monthly increase since February 2007 and followed a marked increase of 1.2% in November.
  • The year-on-year increase in house prices spiked to 4.0% in December; this was the largest increase since February 2018, and up from 2.1% in November and 0.9% in October (which had been the lowest level since April 2013).
  • The December/November Halifax data suggest that house prices have stepped up a gear after largely struggling in recent months. However, we remain cautious about this interpretation. House prices and activity can be volatile on a month-to-month basis and we would not read too much into the recent firmer data – especially as they may have been distorted by varying perceptions of the recent number of uncertainties.
  • It is possible that house prices had a boost in November and December from some buyers keen to get their move done before the General Election.  
  • The Halifax measure tends to give higher house price readings than other measures. For example, the Nationwide put annual house price inflation at 1.4% in December after a 0.1% month-on-month rise.
  • We will want to see sustained evidence of improving housing market activity and firmer prices before changing our outlook for house prices over 2020. For now, we retain the view that house prices will rise by around 2% over 2020 (on most measures) but there is an increasing possibility that the increase could come in modestly higher and possibly reach 3%.
  • With the UK General Election delivering a decisive result and the UK now set to leave the EU with Boris Johnson’s deal on 31 January, the housing market may get a modest near-term leg up from reduced uncertainties. Rightmove reported a pick-up in buyer enquiries in the immediate few days after the General Election.
  • 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 and there will still be appreciable uncertainties, including on the UK-EU relationship front – so that the upside for house prices in 2020 is likely to be limited. In addition, the fundamentals for consumers have probably peaked at least for the time being, with earnings growth recently slowing from its July 11-year high and employment essentially flat since midyear.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“Unexpectedly, the Halifax reported house prices jumped 1.7% month-on-month in December. This was the largest month-on-month jump since February 2007 and followed an increase of 1.2% month-on-month in November. Prior to this, there had been month-on-month dips of 0.1% in October and 0.4% in September.

“The annual rise in house prices jumped to 4.0% in December, which was the highest level since February 2018. It was up from 2.1% in November and just 0.9% in October (the lowest since April 2013). In addition to the 1.7% month-on-month rise, the year-on-year increase in December was also lifted by the fact that hose prices were flat month-on-month in December 2018.

“The three-month/three-month gain in house prices strengthened to 1.0% in December from 0.2% in November.

“The Halifax measure has tended to be at the top end of house prices (even after it recently revamped its index). Latest data from the Nationwide put annual house price inflation at a 13-month high of 1.4% in December (after a rise of 0.1% month-on-month) while the Land Registry/ONS put it at 0.7% in October.

Housing market activity saw pick-up in November 

“Latest data from the Bank of England mortgage approvals for house purchases rose modestly to 64,994 in November after slowing to a seven-month low of 64,662 in October from 65,825 in September and a 17-month high of 67,049 in July.

“Even so, at 64,994 in November, mortgage approvals were still below the middle of the 63,000-68,000 range that has broadly held since late-2016.

“There may have been a small lift to mortgage approvals in November from house buyers keen to move before the General Election.

“Overall though, housing market activity has been pressurised in recent months by heightened uncertainties. 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 pointed to housing market activity continuing to be constrained by uncertainties in November. In particular, the RICS housing market survey reported that the results of its November survey “continue to display a cautious approach from both buyers and sellers. Key metrics capturing buyer demand, new instructions and sales remain in negative territory. Much of the anecdotal commentary suggests that uncertainty surrounding the General Election and Brexit are continuing to stifle activity.”  Specifically, the survey showed new buyer enquiries fell for a third successive month in November after being flat in August and rising modestly in June and July. Meanwhile, newly agreed sales also fell for a third successive month, albeit at a reduced rate.

Outlook for house prices

“December’s jump in house prices reported by the Halifax is undoubtedly a major surprise, especially as it follows on from robust November data. Indeed, the December/November Halifax data suggest that house prices have stepped up a gear after largely struggling in recent months.

“However, we remain cautious about this interpretation. House prices and activity can be volatile on a month-to-month basis and we would not read too much into the recent firmer data – especially as they may have been distorted by varying perceptions of the recent number of uncertainties.

“It is possible that house prices had a boost in November and December from some buyers keen to get their move done before the General Election to avoid any shocks or uncertainties that could arise.

“We will want to see sustained evidence of improving housing market activity and firmer prices before changing our outlook for house prices over 2020. For now, we retain the view that house prices will rise by around 2% over 2020 (on most measures) but we admit there is an increasing possibility that the increase could come in modestly higher and possibly reach 3%.

“The housing market may get a modest leg-up from the General Election delivering a decisive Conservative win and the UK now inevitably leaving the EU with Boris Johnson’s deal on 31 January. Rightmove reported a marked pick-up in buyer enquiries in the immediate few days after the General Election.

“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 possibility of cutting Stamp Duty appears to have been shelved). 

“Furthermore, mortgage interest rates are at historically low levels. Indeed, there is clearly a very real possibility that the Bank of England 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 fifth successive month, and pretty sharply in November; 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 November 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 influence house prices in the near-term at least.

“However, the economy still looks set for a challenging 2020 even with a Brexit deal so 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.

“While a positive for the housing market is that consumers’ purchasing power has picked up appreciably since mid-2018 and employment recently reached a record high in mid-2019, these healthier fundamentals likely peaked around mid-2019. Specifically, real earnings growth improved from 0.1% in the three months to June 2018 to 2.0% in the three months to July 2019 – but it has since eased back to 1.5% in the three months to October. We suspect earnings growth is likely to stabilise at or just below recent lower levels.

“Meanwhile, employment has essentially flat-lined since mid-2019 and the labour market may well be subdued in the near-term at least as companies face a soft domestic economy and still significant uncertainties. Employment reached a record high in the three months to June (although it has since essentially flat-lined).”