- Nationwide reported that house prices rose a substantial 2.0% month-on-month in August, which was the largest monthly rise since February 2004 and followed a similarly robust gain of 1.8% in July; this lifted the year-on-year increase to 3.7% in August (the equal highest annual rise with April since February 2017) from 1.5% in July and a marginal dip of 0.1% in June
- In August, housing market activity continued to be buoyed by the easing of lockdown restrictions. This trend has been reinforced by the Chancellor raising the Stamp Duty threshold to £500,000 from mid-July through to 31 March 2021
- In the immediate future, further pick-up in housing market activity and house prices is likely
- However, the EY ITEM Club suspects the upside for the housing market will be limited due to challenging fundamentals for consumers. The EY ITEM Club suspects that the housing market is likely to come under pressure over the final months of 2020 and start of 2021 due to a significant rise in unemployment. There is also likely to be a fading of the pent-up demand effect
- Some temporary support in Q1 is likely to come from buyers looking to take advantage of the Stamp Duty threshold increase before it ends. Although, there is a possibility that the Chancellor could extend it in the Autumn Budget
- The EY ITEM Club suspects that house prices could be around 3% lower than now by early-2021
- The EY ITEM Club expects housing market activity to gradually improve from early-2021 as the labour market stabilises then starts to modestly improve and the UK’s economic recovery continues. Very low borrowing costs should also help with the Bank of England unlikely to lift interest rates from 0.10% during 2021. Even so, the EY ITEM Club expects house price gains to be no more than 2-3% in 2021
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“Nationwide reported house prices rose substantially for a second month running in August with a month-on-month increase of 2.0%. This was the strongest monthly gain since February 2004 and followed a similarly robust increase of 1.8% month-on-month in July. In contrast, there had been significant month-on-month declines of 1.6% in both June and May, which were the first monthly drops on the Nationwide measure since last September and the largest declines since February 2009.
“The year-on-year change in house prices jumped to 3.7% in August from 1.5% in July, matching April’s strongest annual increase since February 2017; house prices had previously dipped 0.1% year-on-year in June, which had been the first annual decline in house prices since December 2012. June’s brief dip into negative territory followed the annual rate of increase more than halving to 1.8% in May from 3.7% in April, which had been the highest since February 2017 and up from an eight-month low of just 0.2% in September 2019.
“Nationwide observed that house prices on its measure reached an all-time high in August when the average price stood at £224,123.”
Housing market activity has picked up since restrictions started to be eased, reinforced by the Stamp Duty break
Howard Archer continues: “Relief for the housing market in England came from an easing of lockdown restrictions on 13 May. The easing of restrictions for the Welsh, Northern Irish and Scottish (at end of month) housing markets occurred during June.
“There was an immediate pick-up in housing market activity following the easing of restrictions, which was then reinforced by the Chancellor’s raising of the Stamp Duty threshold to £500,000 from mid-July until 31 March 2021.
“Yesterday, the Bank of England reported that mortgage approvals for house purchases for accelerated markedly for a second month running in July to be at a 5-month high of 66,281. This was up from 39,9902 in June and a record low of just 9,285 in May. Mortgage approvals for house purchases had previously fallen to May’s record low from 15,867 in April, 56,289 in March and a more than six-year high of 73,681 in February.
“Furthermore, Rightmove reported that a record number of home sales were agreed between mid-July and early-August.“
Outlook for the UK housing market
Howard Archer adds: “Housing market activity may see a further pick-up in the near term providing some support to prices, as a result of the raising of the Stamp Duty threshold, along with the release of some pent-up activity following the easing of lockdown restrictions. The easing of lockdown restrictions affecting the housing market has occurred later in Wales, Scotland and Northern Ireland than in England, so there may be some catching up there. This could result in house prices firming modestly over the next few months.
“Interestingly, Nationwide also observed that: ‘Behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown. Our own research, conducted in May, indicated that around 15% of people surveyed were considering moving as a result of lockdown.’”
Howard Archer continues: “Nevertheless, the EY ITEM Club suspects the current pick-up in activity and firming of prices will prove unsustainable due to challenging fundamentals for consumers. Many people have already lost their jobs, despite the supportive Government measures, while others will be concerned that they may still end up losing their job once the furlough scheme ends. Additionally, many incomes have been affected. Consumer confidence is still low compared to long-term norms and many people are likely to remain cautious for some time to come when making major spending decisions such as buying or moving house.
“The EY ITEM Club suspects that the housing market is likely to come under pressure over the final months of 2020 when there is likely to be a significant rise in unemployment as the furlough scheme draws to a close in October. This will not only adversely affect the fundamentals for house buyers, but also likely fuel caution on committing to buying a house. There is also likely to be a fading of the pent-up demand effect on activity. Consequently, the EY ITEM Club predicts that the housing market will come under downward pressure late on in 2020.
“The EY ITEM Club expects the housing market to remain under pressure over the early months of 2021, although some temporary support in the first quarter will likely come from buyers looking to take advantage of the Stamp Duty threshold increase before it ends on 31 March – although there is always the possibility that the Chancellor could extend it in the Autumn Budget.
“Consequently, the EY ITEM Club suspects that house prices could be around 3% lower than now by early-2021.
“The EY ITEM Club does expect housing market activity to gradually improve from early-2021 as the labour market stabilises then starts to improve and the UK’s economic recovery continues. Very low borrowing costs should also help with the Bank of England unlikely to lift interest rates from 0.10% during 2021. Even so, the EY ITEM Club expects house price gains to be no more than 2-3% in 2021.”