- Nationwide reported house prices fell 0.3% month-on-month (m/m) in January, the first monthly dip in house prices since June 2020. This follows increases of 0.8-0.9% seen over the previous four months. The year-on-year (y/y) gain in house prices fell back to 6.4% in January from 7.3% in December (the highest since November 2014)
- Halifax’s December data also hinted that house prices could be starting to come off the boil
- House prices strengthened markedly over 2020 as market activity was buoyed by the release of pent-up demand following the easing of restrictions from mid-May, 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 will prove unsustainable sooner rather than later – although activity may get some final support in Q1 from 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.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“Nationwide reported house prices fell 0.3% month-on-month (m/m) in January. This was the first monthly fall in house prices since June and followed four successive monthly gains of 0.8-0.9% between September and December, including 0.9% in December.
“The year-on-year (y/y) change in house prices dipped to 6.4% in January from 7.3% in December, which had been the highest since November 2014. The annual rate of increase had previously climbed from 6.5% in November, 5.8% in October, 5.0% in September, 3.7% in August, 1.5% in July and a dip of 0.1% y/y in June which had been the first annual decline in house prices since December 2012.
“The underlying rate of increase in house prices slowed as the three-month/three-month rise moderated to 2.2% in January from 3.0% in December and 3.7% in November, which had been the strongest three-month/three-month gain since October 2009.”
December Halifax data had hinted that house prices could be starting to come off boil
Howard Archer continues: “The latest data from Halifax had provided a first hint that house prices may be starting to come off the boil. Halifax reported that house prices rose a much-reduced 0.2% m/m 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 y/y 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.
Housing market activity has retained its buoyancy but some initial indications it may now be starting to slow
Howard Archer continues: “The 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 easing of the initial lockdown restrictions that were introduced on 23 March. 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 suggested 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 seven 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 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 final 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 suspects that house prices could be around 5% lower than now by the end of 2021."