- Halifax reported house prices displayed appreciable momentum in April as they rose 1.4% month-on-month. This lifted the annual rate of increase to a five-year high of 8.2%
- The housing market is showing renewed vigour after new supportive measures were included in the March Budget. These measures include extending the Stamp Duty threshold and introducing a low-deposit mortgage scheme. The extension of the jobs furlough scheme will also likely help the housing market
- Prior to these new measures, housing market activity had been showing signs of coming off the boil after strengthening through the second half of 2020
- While the EY ITEM Club says the housing market is likely to see near-term vigour and a firming of prices, it believes that the strength of the housing market is outsized relative to the economic fundamentals, and the level of prices increases will ultimately prove unsustainable
- The EY ITEM Club suspects house prices will lose momentum again later on this year and could well be flat year-on-year by early 2022 with some quarters of falling prices
- Housing market activity and prices are expected to be increasingly pressurised over the final months of 2021 and the early months of 2022 as the Stamp Duty benefit ends, unemployment likely rises modestly and pent-up demand wanes. There may well also be 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 1.4% month-on-month in April. This followed an increase of 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 to a five-year high of 8.2% in April from 6.5% in March and a six-month low of 5.2% in February. The annual gain in house prices had earlier fallen back to February's low of 5.2% from a previous peak of 7.6% in November – the highest since June 2016.”
Latest housing market data shows renewed impetus
Howard Archer continues: “The marked rise in house prices in April reported by Halifax ties in with stronger data from Nationwide. Nationwide reported that house prices rose 2.1% month-on-month in April, to record the largest monthly increase since February 2004. This followed a dip of 0.3% month-on-month in March. House prices had previously bounced back 0.7% month-on-month in February after a dip of 0.1% month-on-month in January, which had been the first monthly fall in house prices since last June. The year-on-year change in house prices rebounded to a four-month high of 7.1% in April after moderating to 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 housing market had been coming off the boil early in 2021 after gaining substantial momentum during the second half of 2020. The Bank of England reported that mortgage approvals for house purchases fell back to an eight-month low of 82,735 in March from 87,385 in February, 96,645 in January, 100,546 in December and 103,126 in November, which had been the highest level 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 9,486 in May 2020.
“The Chancellor announced new supportive measures for the housing market in the Budget at the start of March and latest survey evidence suggests that this has 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. Additionally, Rightmove reported a marked pick up in housing market activity in April and higher asking prices.”
“Nationwide has also observed that behavioural shifts may also be boosting activity, as people reassess their housing needs and preferences as a result of 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.
Outlook for the UK housing market
Howard Archer comments: “Following the Chancellor’s introduction of more supportive measures in March’s budget, the EY ITEM Club now expects the housing market to show vigour in the near term and a further firming of prices.
“The market is likely to have near-term support from the extension of the full Stamp Duty threshold increase from end-March to end-June and then partially to end-September, and from the introduction of a mortgage guarantee scheme for people with low deposits. Meanwhile, the market will also be aided by unemployment rising less than previously expected due to the extension of the furlough scheme to the end of September.
“However, the EY ITEM Club is doubtful that the renewed vigour in the housing market will be sustained for an extended period as the strengthening of the housing market has been outsized given economic fundamentals.
“The EY ITEM Club suspects house prices will lose momentum again later on this year and could well be flat year-on-year by early 2022 with some quarters of falling prices 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 by growing expectations that interest rates could start to rise before long.”