- The Land Registry/ONS report house prices rose 1.8% month-on-month in March. This caused the annual increase to reach 10.2%, the highest level since August 2007
- The housing market is showing renewed impetus after new supportive measures were included in the March Budget. These include extending the Stamp Duty threshold increase and introducing a low-deposit mortgage scheme. The extension of the 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
- Consequently, the EY ITEM Club believes the housing market is likely to see near-term vigour and further firming of prices. The firming of prices may be reinforced by a current relative shortage of properties for sale compared to demand
- Nevertheless, the EY ITEM Club 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 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 also be growing expectations that interest rates could begin to rise.
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The Land Registry/ONS reported that the year-on-year increase in house prices reached 10.2% in March – the highest level since August 2007. This was up from 9.2% in February, 8.0% in January and 7.8% in December. The annual increase in house prices has climbed from a low of 0.7% in April 2020.
“House prices rose 1.8% month-on-month unadjusted in March, having increased 0.5% in February and 0.2% in January. Prices had risen 0.9% month-on-month in March 2020.
“The Land Registry/ONS’ measure of house price inflation lags many of the other measures as it is based on mortgage completions. The ONS has observed that, typically, a house purchase can take six to eight weeks to reach completion.”
Housing market activity now showing renewed signs of vigour
Howard Archer continues: “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 since August 2007. Approvals had previously risen for six successive months through to November from a record low of 9,486 in May 2020.
“While still at a relatively elevated level, March’s dip in mortgage approvals indicated that the housing market was continuing to come off the boil as the impetus from the initial raising of the Stamp Duty threshold – from July 2020 to the end of March 2021 – waned. Housing market activity was also buoyed over the latter months of 2020 by the pent-up demand which followed the easing of the first lockdown restrictions from May 2020.
“Additionally, Nationwide has said 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.
“New supportive measures for the housing market were included 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 April RICS residential monthly survey revealed that buyer enquiries strengthened across all regions. Additionally, Rightmove reported a marked pick up in housing market activity in April and higher asking prices.”
Outlook for the UK housing market
Howard Archer comments: “Following the Budget measures, the EY ITEM Club now expects the housing market to show vigour in the near term and a further firming of prices. The firming of prices may be reinforced by a current relative shortage of properties for sale compared to demand.
“The key Budget measures included the extension of the Stamp Duty threshold increase from end-March to end-June, and then partially to end-September, and the introduction of a mortgage guarantee scheme for people with low deposits. The market will also be helped 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. This will be down to the Stamp Duty benefit ending, unemployment rising and 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.”
Latest Nationwide and Halifax data indicate house prices are firming
Howard Archer adds: “Latest Halifax and Nationwide data indicate that house prices are firming again after showing signs of coming off the boil at the start of the year.
“Halifax reported that 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. 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.
“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.”