- Nationwide reported house prices dipped 0.2% month-on-month in March after a gain of 0.7% in February. The year-on-year gain in house prices moderated to a 5-month low of 5.7% in March from 6.9% in February
- Signs that house prices are losing underlying momentum was evident in the three-month/three-month growth rate slowing appreciably to 1.1% in March from 1.8% in February, 2.2% in January and a peak of 3.6% in November
- The March Nationwide data adds to the evidence that house prices are coming off the boil, as reflected in recent Halifax data
- House prices strengthened significantly over the second half of 2020 as housing market activity was 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
- However, while still relatively elevated, housing market activity had come off its highs early on in 2021 before the Chancellor announced supportive measures in the Budget on 3 March
- The EY ITEM Club now expects house prices to be flat over 2021 rather than contract by 5%. Nevertheless, some quarter-on-quarter decreases in house prices are expected at the end of 2021 and start of 2022
- The EY ITEM Club believes that the strengthening of the housing market has been outsized relative to the economic fundamentals, and the strength of prices will prove unsustainable
- Nevertheless, the housing market is likely to benefit in the near-term from the Stamp Duty threshold extension, the low-deposit mortgage guarantee scheme, and the extension of the furlough scheme which has led to a lower increase in unemployment than previously expected
- Housing market activity and prices may see pressure over the final months of 2021 and the early months of 2022 as the Stamp Duty benefit ends, unemployment rises and pent-up demand wanes, as well as growing expectations that interest rates could begin to rise.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“There is further evidence that house prices are coming off the boil, as Nationwide reported that they edged down 0.2% month-on-month in March. House prices had previously regained upward momentum in February when they rose 0.7% month-on-month in February after a dip of 0.2% month-on-month in January, which had been the first monthly fall in house prices since June. There had earlier been four successive monthly gains of 0.8-0.9% between September and December 2020.
“The year-on-year increase in house prices slowed to a five-month low of 5.7% in March after rising back up to 6.9% in February from 6.4% in January. The annual rate of increase in house prices had earlier peaked at 7.3% in December, which had been the highest since November 2014, and up from 1.5% in July 2020 and a dip of 0.1% year-on-year in June – the first annual decline in house prices since December 2012.
“The three-month/three-month growth rate in house prices slowed appreciably to 1.1% in March, which was the lowest rate since last August, from 1.8% in February, 2.2% in January, 2.9% in December and a peak of 3.6% in November (the strongest three-month/three-month gain since October 2009).
Latest Halifax data also suggested slowed growth in house prices
Howard Archer continues: “The latest data from Halifax also suggested house price growth is slowing. Halifax reported that house prices edged down 0.1% month-on-month in February, following a drop of 0.4% in January – the first monthly declines since last May.
Housing market activity has been buoyant but was slowing before Budget measures
Howard Archer says: “The recent marked strength in house prices has occurred amid a strong pick-up in housing market activity through the second half of 2020 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 and pent-up activity was released.
“This lift was then reinforced by the raising of the Stamp Duty threshold from £125,000 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, leading to some polarisation in demand for residential properties.
“However, it is evident that housing market activity had come off its highs before the Chancellor announced supportive measures in the Budget on 3 March.
“The Bank of England reported that mortgage approvals for house purchases eased back for a third month running in February, and at an increased rate, but were still at a historically elevated level. Specifically, mortgage approvals for house purchases dipped to a six-month low of 87,669 in February from 97,350 in January, 101,252 in December and 103,708 in November, which had been the highest since August 2007. Mortgage approvals for house purchases had previously risen for six successive months from a record low of 9,432 in May 2020. Despite easing back further from November’s peak level in February, mortgage approvals for house purchases were still at the sixth highest level in more than 13 years.
“Survey evidence also indicates housing market activity had lost momentum, at least until the Chancellor announced the supportive measures in the Budget. The February RICS residential monthly survey revealed that buyer enquiries fell for a second month running after rising over the previous seven months, while new properties coming on to the market also declined for a second successive month after rising through the second half of 2020. Newly agreed sales were flat in February after falling in January.”
Outlook for the UK housing market
Howard Archer comments: “We now expect house prices to be flat over 2021 rather than contracting by 5%. Nevertheless, we still expect house prices to see some quarter-on-quarter decreases in house prices at the end of 2021 and start of 2022. The EY ITEM Club believes that the strengthening of the housing market has been excessive given economic fundamentals and the strength of prices will prove unsustainable.
“The support to the housing market coming from the original rise in the Stamp Duty threshold through to 31 March had started to wane, and activity was easing back from its highs with some signs that house prices were starting to come off the boil.
“However, the housing market is likely to benefit in the near-term from the Chancellor extending the full Stamp Duty threshold increase from end-March to end-June in the Budgetand then partially to end-September. The introduction of a mortgage guarantee scheme for people with low deposits is also likely to provide some support, with further help from the extension of the furlough scheme leading to unemployment rising less than previously expected.
“Nevertheless, housing market activity and prices will see pressure over the final months of 2021 and the early months of 2022 as the Stamp Duty benefit ends, unemployment rises and pent-up demand wanes. Growing expectations that interest rates could start to rise may also cause an impact from the latter months of 2021.”