- The Land Registry/ONS report house prices rose 1.2% month-on-month in November, causing the annual increase to rise to a four-and-a-half year high of 7.6% from 5.9% in October
- Prices in London climbed 4.0% month-on-month in November; the annual rate of increase increased to 9.7% (the highest since July 2016)
- House prices have strengthened markedly as housing market activity has been buoyed by the release of pent-up demand following the easing of restrictions from mid-May last year, people re-assessing their housing needs in the wake of lockdowns and the temporary raising of the Stamp Duty threshold
- The EY ITEM Club suspects the current robustness of housing market activity and the strength of prices will prove unsustainable sooner rather than later – although it may well hold up in Q1 with buyers looking to take advantage of the Stamp Duty threshold increase before it ends on 31 March
- The housing market is likely to come under mounting pressure in the near term as the economy continues to be affected by COVID-19 restrictions. In addition, there may well still be a significant rise in unemployment, despite the furlough scheme being extended until April. The effect of pent-up demand on housing market activity is also likely to fade
- The EY ITEM Club suspects that house prices could decrease by around 5% by the end of 2021
- The EY ITEM Club expects housing market activity to gradually improve late on in 2021, allowing prices to stabilise as the UK’s economy establishes a sustained firmer footing and the labour market comes off its lows, supported by the roll-out of the COVID-19 vaccines. Very low borrowing costs should also help, with the Bank of England unlikely to lift interest rates from 0.10% during 2021 and for some time thereafter
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The Land Registry/ONS have reported that the year-on-year increase in house prices rose to 7.6% in November – the largest increase since June 2016 – from 5.9% in October, 4.2% in September 3.1% in August and 2.0% in July. It has picked up from a low of 0.7% in April.
“House prices rose an unadjusted 1.2% month-on-month in November. This followed month-on-month increases of 1.4% in October and 1.2% in September. Prices had dipped 0.4% month-on-month in November 2019.
“London prices increased 4.0% month-on-month in November, while the annual rate of increase strengthened to 9.7% – the highest since July 2016 – from 4.6% in October.
“The Land Registry/ONS measure of house price inflation is based on completed housing transactions and the ONS has observed that, typically, a house purchase can take six to eight weeks to reach completion.”
Latest Halifax data hint house prices could be starting to come off boil but Nationwide data still firm
Howard Archer continues: “Latest data from Halifax hint that house prices may be starting to come off the boil. Halifax reported that house prices rose a much reduced 0.2% month-on-month in December; this was a sixth successive monthly increase but the smallest since prices started rising in July and down from an increase of 1.0% in November. The year-on-year gain in house prices moderated to a four-month low of 6.0% in December after rising to 7.6% in November – the highest since June 2016 – from, 7.5% in October, 7.3% in September, 5.2% in August and a seven-month low of 2.5% in June.
“However, Nationwide has reported house prices rose a still robust 0.8% month-on-month in December, which was a fourth successive month of 0.8-0.9% monthly increases. The year-on-year change in house prices climbed to 7.3% in December – the highest since November 2014 – from 6.5% in November, and 5.8% in October.”
Housing market activity has retained its buoyancy but indications may now be slowing
Howard Archer continues: “The marked strength in house prices has occurred amid a strong rebound in housing market activity after the lows seen in April and May. Housing market activity in the UK picked up from May onwards after the initial lockdown restrictions that were introduced on 23 March were eased. There was an immediate pick-up in housing market activity as pent-up activity was released.
“This lift was then reinforced by the raising of the Stamp Duty threshold to £500,000 from mid-July until 31 March 2021.
“Additionally, Nationwide has recently observed that, “behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown.” In particular, it appears that an increasing number of people want a garden and also space to work at home. This is leading to some polarisation in demand for residential properties.
“Latest data from the Bank of England show that mortgage approvals for house purchases accelerated for a sixth month running in November to 104,969 – the highest since August 2007. This was up from 98,338 in October, 92,594 in September, 86,174 in August and a record low of 9,348 in May.
“However, December RICS residential monthly survey suggested that housing market activity is now slowing. RICS observed that “results continue to point to rising activity across the market, even if the pace of growth has softened noticeably compared with earlier in H2. That said, sales expectations have retreated according to the most recent feedback.” The survey’s buyer enquiries balance dipped to a seven-month low of +15% in December from +26% in November. The agreed sales balance dipped to +18% in December from +24% previously. Growth in new properties coming on to the market also slowed in December.”
Outlook for the UK housing market
Howard Archer adds: “The EY ITEM Club suspects elevated housing market activity and robust prices will prove unsustainable sooner rather than later. The EY ITEM Club expects the housing market to come under increasing pressure through much of 2021, although 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. There are reports that the Chancellor does not intend to extend the raising of the Stamp Duty threshold in the 3 March Budget.
“The EY ITEM Club believes that the housing market is likely to come under mounting near-term pressure as the economy continues to be affected by major restrictions in most areas, while there may well still be a significant rise in unemployment despite the furlough scheme being extended until April. Meanwhile, earnings growth looks likely to be limited and there is also likely to be a fading of the pent-up demand effect on housing market activity.
“Consequently, the EY ITEM Club suspects that house prices could be around 5% lower than now by the end of 2021.
“The EY ITEM Club expects housing market activity to gradually improve late on in 2021 allowing prices to stabilise as the UK’s economy establishes a sustained firmer footing and the labour market comes off its lows, supported by the roll-out of the COVID-19 vaccines. Very low borrowing costs should also help with the Bank of England unlikely to lift interest rates from 0.10% during 2021 and for some time thereafter.”