Press release

7 Apr 2020 London, GB

UK house prices flat month-on-month in March – EY ITEM Club comments

The Halifax reported house prices were flat month-on-month in March and this was the first time that house prices had failed to rise for five months.

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  • The Halifax reported house prices were flat month-on-month in March. This was the first time that house prices had failed to rise for five months. Nevertheless, the annual rate of increase rose back up to 3.0% in March after dipping to 2.8% in February from 4.1% in January (which had been the highest level since February 2018).
  • The housing market had a leg-up in late-2019 and at the start of 2020 from increased optimism and reduced uncertainties following December’s decisive General Election result (reinforced by greater near-term clarity on Brexit with the UK having left the EU on 31 January with a deal). The Bank of England reported that mortgage approvals for house purchases rose markedly to 73,546 in February, taking them to the highest level since January 2014.
  • The early-2020 upturn in the housing market is now being brought to an abrupt halt by the impact of coronavirus on the economy, households and people’s movements. Unsurprisingly, a report released by Hometrack on 26 March reported that housing demand was down 40% over the past week and that “demand is set to fall further now the UK is moving into a 3+ week period of partial lockdown”.
  • Indeed, the housing market looks set to be essentially at a standstill for the next few weeks at least. The Government has advised homebuyers and renters to delay moving as much as they can while the emergency measures are in place. The Government has further stated that no visitors are allowed to visit properties while “stay-at-home” measures are in force, including estate agents and surveys as well as potential buyers.
  • Both the Halifax and the Nationwide have observed that the shortage of transactions over the coming months will make gauging house price trends difficult.
  • The expectation has to be that house prices will come under downward pressure from a sharp rise in unemployment and people’s incomes being affected (despite the Government’s supportive measures) as well as sharply lower consumer confidence and increased caution.
  • Once restrictions start to be lifted on people’s movements, housing market activity should progressively pick up. Even so, given the impact on the economy from coronavirus, the likely substantial rise in unemployment and the impact on many people’s incomes, the housing market looks unlikely to return to the levels seen at the start of 2020 for some time.
  • How quickly house prices start to recover will depend on the near-term impact of coronavirus and then how well the economy rebounds (EY ITEM Club expects a decent recovery to start in the second half of 2020 and to continue in 2021) and how quickly the labour market recovers. Very low borrowing costs with the Bank of England taking interest rates down to 0.1% should provide some support.

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

The Halifax reported house prices were flat month-on-month in March. This followed four months of increases, including 0.2% month-on-month in February and 0.4% month-on-month in January, which had looked 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 annual rise in house prices rose back up to 3.0% in March after falling back to 2.8% in February from 4.1% in January (the highest level since February 2018). It had previously risen to January’s peak from 4.0% in December, 2.1% in November and just 0.9% in October (the lowest since April 2013). This reflected the fact that house prices had spiked 1.5% month-on-month in February 2019.

The three-month/three-month gain in house prices moderated to 2.1% in the three months to March from 2.8% in the three months to February.

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 30-month high of 3.0% in March (after a rise of 0.8% month-on-month). However, the Nationwide commented that the cut-off point for its survey is just before the end of the month so the survey would not have fully captured developments after the government imposed the lockdown.

Housing market had picked up at start of 2020 but evidence shows coronavirus is affecting activity

Latest data from the Bank of England show mortgage approvals for house purchases rose markedly to 73,546 in February, taking them to the highest level since January 2014. This was up from 71,344 in January, 68,122 in December, 66,074 in November and a five-month low of 65,327 in October.

The data provides further evidence that the housing market was benefitting markedly early on in 2020 from increased confidence and reduced uncertainties following December's election. This was also evident in survey evidence. The February RICS survey reported that “new buyer enquiries, agreed sales and fresh listings all reportedly increased over the survey period, extending a run of positive readings going back to December”.

However, there were already signs in the surveys that coronavirus was starting to have some impact on housing market sentiment in February. The February RICS survey also observed that “although near term sales expectations remain positive, optimism has moderated somewhat, with anecdotal evidence suggesting concerns over the economic impact of the coronavirus are weighing on the outlook to some extent”.

It is clear that coronavirus impacted housing market activity during March, reflecting the mounting restrictions on people’s movements as well as the hit to confidence and economic activity. Hometrack reported on 26 March that demand for houses was down 40% over the past week and that “demand is set to fall further now the UK is moving into a 3+ week period of partial lockdown.

The Halifax observed that the housing market started March similarly to early-2020 with sustained buyer and seller activity, but it ended the month in very different territory due to coronavirus and the country’s response.