- Halifax reported house prices showed appreciable momentum in May rising 1.3% month-on-month, which lifted the annual rate of increase to a near seven-year high of 9.5%
- The housing market is showing renewed vigour after new supportive measures were included in the March Budget. Prior to this, market activity had been showing signs of coming off the boil after strengthening through the second half of 2020
- Budget measures included 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 along with the current resilience of the labour market
- Consequently, the EY ITEM Club believes the housing market will see near-term vigour and a firming of prices. Annual price increases may be double-digit in the near term
- However, the EY ITEM Club believes the strength of the housing market is outsized relative to the economic fundamentals, and the level of price 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 mid-2022, with some quarters of falling prices 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 1.3% month-on-month in May. This followed month-on-month increases of 1.5% in April and 1.1% in March, which were the first monthly increases since November.
“The year-on-year gain in house prices rose to a near seven-year high of 9.5% in May from 8.2% in April, 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 – this had been the highest level since June 2016.
“The recent rises in reported by Halifax tie in with stronger data from Nationwide, which last week reported that house prices rose 1.8% month-on-month in May after rising 2.3% in April. The year-on-year change in house prices climbed to 10.9% in May, the highest since August 2014, from 7.1% in April 5.7% in March.”
Housing market activity showing renewed signs of vigour following Budget after seemingly starting to come off boil in early 2021
Howard Archer continues: “Latest data and surveys indicate that the housing market is showing renewed signs of vigour following the inclusion of supportive measures in the early-March Budget. Prior to this, the housing market had appeared to be losing momentum after a robust second half of 2020.
“The Bank of England reported that mortgage approvals for house purchases rose back up to 86,921 in April after falling back to an eight-month low of 83,402 in March from 87,938 in February and 103,400 in November, which had been the highest since August 2007. Mortgage 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.
“Additionally, the April RICS residential monthly survey revealed that buyer enquiries strengthened across all regions. Meanwhile, Rightmove reported a marked pick up in housing market activity in April.
“The housing market slowed early in 2021 as the impetus from the Chancellor initially raising the Stamp Duty threshold through to the end of March waned. Housing market activity was initially buoyed over the latter months of 2020 by the release of pent-up demand following the easing of the first lockdown restrictions from May 2020.
“Additionally, Nationwide has 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: “Due to the supportive measures in the Budget, the EY ITEM Club expects the housing market to show vigour in the near term and a firming of prices. Annual price increases may well be double-digit in the near term.
“The housing market is likely to get 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. The introduction of a mortgage guarantee scheme for people with low deposits is also likely to provide some support for the housing market, as will the likelihood that unemployment will rise less than previously expected due to the extension of the furlough scheme to the end of September.
“House prices may also be lifted in the near term by a current relative shortage of properties available compared to demand.
“However, the EY ITEM Club is doubtful that this 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 mid-2022 with some quarters of falling prices.
“Activity and prices are seen becoming increasingly pressurised over the final months of 2021 and the early months of 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 by growing expectations that interest rates could start to rise before long.”