- Halifax reported house prices rose 1.1% month-on-month in March, lifting the annual rate of increase to a four-month high of 6.5%
- This was the first monthly increase in house prices reported by Halifax since November. The annual increase had reached a six-month low of 5.2% in February from 7.6% in November, the highest level since June 2016
- Evidence of the recent underlying slowdown in house prices came from the three-month/three-month rise slowing to 0.3% in March, the weakest since last July, from a peak of 4.0% in October
- House prices had strengthened over the second half of 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
- However, while still relatively elevated, housing market activity had come off its highs early on in 2021 – before further supportive measures were included in the Budget on 3 March
- Early evidence suggests the measures – including an extension of the Stamp Duty threshold and a low-deposit mortgage scheme – have given the housing market renewed impetus. The extension of the furlough scheme will also likely help the housing market
- The EY ITEM Club now believes the housing market is likely to see near-term resilience and some modest firming of prices – even though it suspects that the recent strength of the housing market has been outsized relative to economic fundamentals, and the strength of prices will ultimately prove unsustainable
- The EY ITEM Club suspects house prices will be flat year-on-year by early 2022. Some quarters of falling prices are likely at the end of 2021 and early on in 2022 as the Stamp Duty benefit ends, unemployment rises, pent-up demand wanes, and amid growing expectations that interest rates could begin to rise.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“Halifax reported house prices rose 1.1% month-on-month in March, which was the first monthly increase since November. House prices on the Halifax measure had previously been flat month-on-month in February and dipped 0.4% in January, which had been the first monthly decline in house prices since last May. This 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 gain in house prices rose back up to a four-month high of 6.5% in March after moderating to a six-month low of 5.2% in February. This was down from 5.4% in January, 6.0% in December and 7.6% in November, which had been the highest level since June 2016. The annual increase had previously climbed to November's peak of 7.6% from a seven-month low of 2.5% in June 2020.
“Despite the pick-up in March itself, the three-month/three-month gain in house prices slowed to just 0.3% in March – the lowest since last July – from 0.5% in February, 1.6% in January, 2.5% in December, 3.8% in November and 4.0% in October.”
Latest Nationwide data softer
Howard Archer continues: “The rise in house prices in March reported by Halifax contrasts with softer data from Nationwide. Nationwide reported that house prices 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 after a dip of 0.2% month-on-month in January. The year-on-year change in house prices slowed to a five-month low of 5.7% in March from 6.9% in February and a peak of 7.3% in December, which had been the highest since November 2014. 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. This was down from 1.8% in February, 2.2% in January, 2.9% in December and a peak of 3.6% in November, which had been the strongest three-month/three-month gain since October 2009.”
Housing market activity has been buoyant but was slowing before March budget measures
Howard Archer continues: “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 increased from May onwards after the initial lockdown restrictions that were introduced on 23 March 2020 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 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. This is 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 they were still at a historically elevated level. 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. Approvals had previously risen for six successive months through to November’s more-than 13-year high from a record low of 9,432 in May 2020. Despite easing back further from the peak level in February, approvals were still at the sixth highest level in more than 13 years.
“However, initial survey evidence suggests the Budget measures have given the housing market renewed life. For example, the March RICS residential monthly survey revealed that all activity elements strengthened including buyer enquiries, new properties coming on to the market and newly agreed sales.”
Outlook for the UK housing market
Howard Archer comments: “Following the Chancellor's introduction of more supportive measures in the Budget, the EY ITEM Club now expects the housing market to show vigour in the near term and a modest firming of prices. The market will also be helped by the extension of the furlough scheme to the end of September.
"However, the EY ITEM Club is doubtful that this will be sustained for long as the strengthening of the housing market has been outsized relative to economic fundamentals.
"The EY ITEM Club suspects house prices will be flat year-on-year by early 2022. Some quarters of falling prices likely at the end of 2021 and early on in 2022 as the Stamp Duty benefit ends, unemployment rises and there is a waning of pent-up demand. Housing market activity may also be affected from the latter months of 2021 onwards by growing expectations that interest rates could start to rise before long.”