Press release

6 Mar 2020 London, GB

UK House Prices Up 0.3% Month-on-Month in February – EY ITEM Club comments

Encouraging news for the housing market with the Halifax reporting that house prices rose 0.3% month-on-month in February.

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  • Encouraging news for the housing market with the Halifax reporting that house prices rose 0.3% month-on-month in February. The annual rate of increase eased to 2.8% in February from 4.1% the previous month, reflecting the 1.5% month-on-month jump in house prices in February 2019.
  • The underlying recent strength in house prices was highlighted by the three-month/three-month gain in prices increasing to 2.9% in the three months to February from 2.3% in January, 1.0% in December and 0.2% in November.
  • Halifax has tended to be at the top end of house prices measures, with Nationwide putting annual house price inflation at a 19-month high of 2.3% in February.
  • A recent stream of firmer data and surveys suggest the housing market has changed up a gear after a lacklustre 2019. The housing market is benefitting from increased optimism and reduced uncertainties following December’s election result and more clarity over the UK’s future relationship with the EU.
  • However, the latest housing market data and survey evidence relates to periods before the escalation of the coronavirus.
  • We had been expecting house prices to rise 3% over 2020 following the marked pick-up in activity at the start of the year. However, it looks highly likely that the coronavirus outbreak will have some dampening effect on the economy and could also impact consumer confidence. Consequently, we are reducing our forecast to 2.5% and it may well need to be revised down further still.
  • Housing market activity – and possibly to a lesser extent prices – could be given a modest lift if the government introduces specific measures aimed at boosting the sector in the Budget next week. Furthermore, mortgage interest rates are at historically low levels and it now looks highly likely that the Bank of England will imminently cut interest rates to help boost the economy. A relative shortage of properties for sale is also likely to provide some support to prices
  • However, the economy now looks set for a challenging 2020. Also, 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. Consequently, the upside for house prices in 2020 is likely to be limited.

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

“The Halifax reported that house prices rose 0.3% month-on-month in February. This followed an increase of 0.4% month-on-month in January, which had looked like a continued, 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 annual rise in house prices fell back to 2.8% in February after rising to 4.1% in January (the highest level since February 2018) from 4.0% in December, 2.1% in November and just 0.9% in October (the lowest since April 2013). This reflected the spike in house prices of 1.5% month-on-month in February 2019.

“The underlying recent strength in house prices was highlighted by the three-month / three-month gain in prices increasing to 2.9% in the three months to February from 2.3% in January, 1.0% in December and 0.2% in November.

“The Halifax has tended to be at the top end of house prices measures and show stronger monthly movements. However, latest data from the Nationwide also put annual house price inflation at a 19-month high of 2.3% in February (after a rise of 0.3% 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.”

Significant increase in housing market activity

“The latest data from the Bank of England shows that mortgage approvals for house purchases rose markedly to 70,888 in January, the highest level since February 2016. This was up from 67,930 in December, 65,954 in November and a seven-month low of 65,285 in October.

“The data fuelled the view that the housing market is benefiting from increased confidence and reduced uncertainties following December's election result. In contrast, housing market activity had been particularly sluggish in the latter part of 2019, falling to a seven-month low in October, indicating that activity was being pressurised by heightened uncertainties over the domestic political situation and Brexit.

“The RICS housing market survey reported that its December survey pointed “to an uplift in sentiment following the result of the General Election” and its January survey signalled “a continued improvement in market activity over the month, with indicators on demand, sales and fresh listings all moving further into positive territory.” The survey showed that buyer enquiries balance rose to +23 in January after jumping to +19 in December from -5 in November, with interest up across the “vast majority” of regions. Additionally, the agreed sales balance improved to +21 in February from +9 in December and -6 in November, which were the first positive reading since May.

Outlook for house prices

“Many recent surveys and data suggest that the housing market has gained momentum, following a lacklustre 2019 (with particular softness around the third quarter).

“There is compelling evidence that the housing market benefitted from increased optimism and reduced uncertainties following December’s decisive election result as well as greater clarity over the UK’s future relationship with the EU.

“We had been expecting house prices to rise 3% over 2020 following the marked pick-up in activity at the start of the year, however, it looks highly likely that the coronavirus outbreak will have some dampening effect as it impacts on the economy and consumer confidence.

“Consequently, we are reducing our forecast to 2.5% and it may well need to be revised further still.

“Housing market activity – and possibly to a lesser extent prices – could be given a modest lift if the government introduces specific measures aimed at boosting the sector in next week’s Budget.

“Furthermore, mortgage interest rates are at historically low levels and it now looks highly likely that the Bank of England will imminently cut interest rates to help give the economy a boost.

“Additionally, a relative shortage of properties for sale is likely to continue to keep prices buoyant, although more houses have recently been coming up for sale. The latest RICS survey showed new instructions to sell rose for the second month in a row in January - at a sharply increased rate. However, RICS noted that: “this improvement in the volume of listings coming onto the sales market follows a protracted period of falling supply, meaning average stock levels on estate agents books remain very low when placed in a historical context (at 43 properties).”

“Meanwhile, even if the government’s recent - and ongoing - initiatives to boost house building are successful, they will take time to have a significant effect, so will have little influence on house prices in the near term.

“The economy now looks set for a pretty challenging year. 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.”