- Latest Halifax data further evidence that recent buoyant house prices are starting to come off the boil
- Halifax reported house prices fell 0.3% month-on-month (m/m) in January having been flat in December. This was the first monthly fall in house prices on the Halifax measure since last May and the largest decline since April. The year-on-year (y/y) gain in house prices moderated to a five-month low of 5.4% in January from 6.0% in December and 7.6% in November (the highest since June 2016)
- Evidence of an underlying slowdown came from the three-month/three-month rise in house prices moderating to 1.6% in January (the lowest since August) from 2.5% in December, 3.8% in November and 4.0% in October
- House prices have strengthened with housing market activity 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 continues to believe that the current robustness of housing market activity and the strength of prices will prove unsustainable sooner rather than later – particularly with the support to activity coming from the extension of the Stamp Duty threshold starting to wane
- The housing market is also 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 fall by around 5% over 2021.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“Halifax reported house prices fell 0.3% month-on-month (m/m) in January. This was the first monthly fall in house prices reported by the Halifax since last May and the largest since April. It followed a flat performance in December. Prior to this house prices had risen for five months running, including a gain of 1.0% in November.
“The year-on-year (y/y) gain in house prices moderated to a five-month low of 5.4% in January from 6.0% in December and 7.6% in November – the highest since June 2016. The annual increase has previously climbed to November's peak of 7.6% from 7.5% in October, 7.3% in September, 5.2% in August and a seven-month low of 2.5% in June.
“The three-month/three-month gain in house prices moderated to 1.6% in January – the lowest since August – from 2.5% in December, 3.8% in November and 4.0% in October.
“The Halifax data add to the evidence that recently buoyant house prices may very well be starting to come off the boil.
“Nationwide also reported house prices dipped 0.3% m/m in January, which was the first monthly decline on that measure since last June and followed four successive 0.8-0.9% monthly increases through to December. The y/y change in house prices moderated to 6.4% in January from 7.3% in December – the highest since November 2014.”
Housing market activity has retained its buoyancy but data indicates that it may now be starting to slow
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 2020. 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 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 edged back to a still highly elevated 103,381 in December after rising for six successive months to 105,324 in November – the highest since August 2007. This was up from 98,195 in October, 92,402 in September, 86,174 in August and a record low of 9,358 in May.
“Despite edging back from November’s peak level in December, mortgage approvals for house purchases were still at the second highest level in more than 13 years.
“However, the December RICS residential monthly survey suggested that housing market activity could now be starting to slow. 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 continues to believe that elevated housing market activity and robust prices will prove unsustainable sooner rather than later – and it does look that the housing market may now be coming off the boil.
“The support to the housing market coming from the rise in the Stamp Duty threshold through to 31 March is now starting to wane. 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 fall by around 5% over 2021.”