- The latest numbers from Halifax showed house prices slipped 0.5% in June, the first month-on-month decline this year. This pushed down annual growth to 8.8% from May’s 14-year high of 9.6%. But that was still very strong by historical standards.
- The tapering of the stamp duty holiday at the end of June should provide a clearer idea of how strong underlying forces supporting house prices are. Better-off, home-owning households are emerging from the pandemic in relatively good financial shape. Taken together with changing housing preferences, very low mortgage rates and a strong economic recovery, it suggests a correction in property prices is unlikely in the near future.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“Following Nationwide’s measure of house prices reaching a near-17-year high in June, the Halifax measure for the same month struck a less heated tone. According to Halifax, prices fell 0.5% month-on-month in June, pushing down annual growth to 8.8% from 9.6% in May.
“However, this was still very strong by past standards – prices grew by an annual average of 4.5% from 2015-19 – and left average prices £21,000 higher than a year earlier. Admittedly, some of the year-on-year strength reflects comparisons with depressed price growth in mid-2020. Meanwhile, a rush of prospective buyers hoping to take full advantage of the stamp duty holiday probably temporarily supported demand and prices in June. The tapering of the stamp duty concession on 30 June should now provide a clearer view of how important the tax measure was in boosting prices and activity.
“There are several forces which should keep price growth elevated for the time being. A shift to home-working may prove semi-permanent, which would support demand for larger, out-of-town properties and push up prices. Home-buyers may also capitalise their savings on commuting costs into property values.
“Higher-income, older and predominately home-owning households are emerging from the COVID-19 pandemic in surprisingly good economic shape, with finances bolstered by savings accumulated during the crisis. This will cushion the housing market from any longer-run economic impact from COVID-19.
“The affordability of mortgages remains very favourable – mortgage interest rates are hovering around record lows and total interest payments by households equalled 3.5% of incomes in Q1 2021, the joint lowest since the series began in 1987. And the boost to confidence and the economic recovery from the end of COVID-19 restrictions will support the housing market.
“All in all, annual growth in house prices will probably slow as the year progresses. But the odds of a serious correction in the housing market in the near future looks low.”