Press release

7 Feb 2020 London, GB

Halifax reports UK house prices up 0.4% month-on-month in January

More strong news on the housing market from the Halifax as it reported prices rose 0.4% month-on-month in January, after jumping 1.8% in December (which had been the largest monthly increase since February 2007).

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  • More strong news on the housing market from the Halifax as it reported prices rose 0.4% month-on-month in January, after jumping 1.8% in December (which had been the largest monthly increase since February 2007). There had also been a sharp increase of 1.2% in November.
  • Indeed, it looks impressive that house prices were still able to rise by 0.4% in January given the size of the jumps seen in both December and November. The underlying recent sharp strengthening of house prices was highlighted in the three-month/three-month rise in prices climbing to 2.3% in January from 1.0% in December and 0.2% in November. 
  • The year-on-year increase in house prices climbed to 4.1% in January, the highest since February 2018. It had previously jumped to 4.0% in December from 2.1% in November and 0.9% in October (which had been the lowest level since April 2013).
  • While it should be noted that Halifax has tended to be at the top end of house prices measures, most of them have recently shown a firming in prices. The Nationwide put annual house price inflation at a 14-month high of 1.9% in January.
  • Recent firmer data and surveys suggest that the housing market could well be changing up a gear after a largely lacklustre 2019 (with particular softness around the third quarter). There is  evidence that the housing market has had an initial leg-up from increased optimism and reduced uncertainties following the decisive General Election result as well as greater near-term clarity on Brexit with the UK leaving the EU.
  • While we suspect that the housing market may get a further near-term boost from reduced uncertainties, we remain relatively cautious over the sector’s overall prospects for 2020 and suspect that the upside may well be limited.
  • Nevertheless, we have recently raised our forecast for house price gains over 2020 to 2.8% from 2.0% and there is clearly a possibility that they could rise more than this.
  • 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 on 11 March (although a cut in Stamp Duty looks unlikely). Furthermore, mortgage interest rates are at historically low levels and there is a very real possibility that the Bank of England’s could cut interest rates in 2020. Additionally, a relative shortage of properties for sale is likely to continue to provide some support to prices.
  • However, the economy still looks set for a pretty challenging 2020 and there will still be considerable uncertainties, including on the UK-EU relationship front – so the upside for house prices in 2020 is likely to be limited. Additionally, while the fundamentals for consumers should still be pretty decent in 2020, we suspect that earnings growth will be below the peak levels seen around mid-2019 and that employment growth will be slower overall.

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

“The Halifax reported house prices rose 0.4% month-on-month in January. This looks to be an ongoing robust performance following prices jumping 1.8% month-on-month in December (the largest month-on-month jump since February 2007) and 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 underlying recent sharp strengthening in house prices was highlighted by the three-month/three-month gain in prices climbing to 2.3% in January from 1.0% in December and 0.2% in November.

“The annual rise in house prices rose to 4.1% in January, taking it to the highest level since February 2018. It had previously jumped to 4.0% in December from 2.1% in November and just 0.9% in October (the lowest since April 2013).

“The Halifax has tended to be at the top end of house prices measures and to show stronger monthly movements (even after it recently revamped its index). Latest data from the Nationwide put annual house price inflation at a 14-month high of 1.9% in January (after a rise of 0.5% month-on-month) while the Land Registry/ONS put it at a 12-month high of 2.2% in November following an unadjusted 0.4% month-on-month increase.

Housing market activity spiked in December 

“The Bank of England reported that mortgage approvals for house purchases rose to 67,241 in December, taking them to the highest level since July 2017. This was up from 65,514 in November and a seven-month low of 65,003 in October. Mortgage approvals had previously relapsed to October’s seven-month low from a previous 2019 peak of 67,072 in July.

“Mortgage approvals in December were highly likely significantly lifted by increased confidence and reduced uncertainties among housing market participants following the decisive General Election result. It is also notable that employment bounced back in the three months to November after some slippage in the third quarter, although earnings growth was limited to 3.2% (down from a mid-year peak of 3.9%).

“Prior to November, mortgage approvals for house purchases had fallen back for three successive months to be at a seven-month low in October indicating that activity was being pressurised by heightened uncertainties over the domestic political situation and Brexit. It was also notable that the labour market showed signs of slippage over the third quarter after employment had reached a (then) record high in June and earnings growth hitting an 11-year high of 3.9% in the three months to July.

“Survey evidence suggests that the housing market has got an initial lift from reduced uncertainties following the decisive General Election result. In particular, the RICS housing market survey reported that its December survey pointed “to an uplift in sentiment following the result of the General Election. Sales expectations have risen sharply and a number of key activity metrics have moved into positive territory for the first time in several months.” In particular, the survey showed that the buyer enquiries balance jumped to +17 in December from -5 in November, with interest up across all regions. Additionally, the agreed sales balance improved to +9 (from -6) which was the first positive reading since May. A balance of +31% of surveyors expect transactions will increase over the next three months.

“Additionally, Rightmove’s latest survey (covering 8 December to 11 January) reported that there had been a 15% year-on-year increase in buyer enquiries and also a 7.4% year-on-year increase in sales agreed. Additionally, 65,000 properties were reported to have been marketed, the largest reported rise for the time of the year for the survey.

Outlook for house prices

“Recent firmer data and surveys suggest that the housing market may be changing up a gear after a lacklustre 2019 with particular softness around the third quarter.

“Certainly, there is compelling evidence that the housing market has had an initial leg-up from increased optimism and reduced uncertainties following the decisive General Election result as well as greater near-term clarity on Brexit with the UK now leaving the EU on 31 January with a deal.

“While we suspect that the housing market may get a further near-term boost from reduced uncertainties, we remain relatively cautious over housing market prospects over 2020 and suspect that the upside will likely be limited.

“Nevertheless, we have modestly raised our forecast for house price gains over 2020 to 2.8% from 2.0% and there is clearly a possibility that they could rise more than this. This partly reflects the fact that we have also modestly raised our UK GDP growth forecast for 2020 to 1.2% from 1.0%.

“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 on 11 March (although the possibility of cutting Stamp Duty appears to have been shelved). 

“Furthermore, mortgage interest rates are at historically low levels. Indeed, there is a very real possibility that the Bank of England’s could cut interest rates in 2020.

“A shortage of houses on the market will also likely offer some support to prices. The latest RICS survey showed new instructions to sell rose in December following the General Election but this was the first increase in six months and the increase was modest. Furthermore, new instructions to sell were reported to be essentially flat in December outside of London and the South East. Consequently, the number of properties on surveyors’ books remain at historically low levels. Admittedly, Rightmove’s latest survey implied a marked pick up in properties coming on to the market after the Election through to early-January but it remains to be seen if this will be sustained

“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 economy still looks set for a pretty challenging 2020 (despite our upward growth revision) so the upside for house prices is likely to be limited. Furthermore, Brexit concerns could very well 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 has reached record highs, latest developments for consumers have been somewhat mixed. Specifically, having improved from 0.1% in the three months to June 2018 to 2.0% in the three months to July 2019, real earnings growth eased back to 1.6% in the three months to November. We suspect earnings growth is likely to stabilise at or just below recent lower levels.

“Meanwhile, the growth in employment has slowed markedly overall since mid-2019 (notwithstanding a spike in the three months to November). Indeed at 38.901 million in the three months to November, the level of employment was only 90,000 higher than it had been in the three months to June (32.811 million). We suspect employment growth will be less over 2020 than it was in 2019.”