- The latest numbers from Nationwide showed house prices falling 0.5% month-on-month (m/m) in July. This pushed down annual growth to 10.5% from 13.4% in June. July’s drop in prices offers some early evidence that the tapering of the stamp duty holiday in June has already had an effect on the market. But the tax concession was not the only factor driving strong growth in property prices and valuations are likely to stay elevated for the time being.
- The evidence is growing that the economic consequences of the pandemic have prompted an upward shift in house prices. Some of those consequences, such as government support to households and ultra-low interest rates, will eventually fade. But others, such as increased demand for larger properties in a world of more home working, could prove long-lasting.
- The outlook for prices faces some headwinds. On some metrics, affordability is looking increasingly stretched. And higher inflation and the risk of a rise in unemployment when the furlough scheme ends means the outlook for growth in household incomes is not all positive. But the odds of a significant correction in the housing market anytime soon looks small.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“The latest numbers from Nationwide showed house prices falling 0.5% in July, the first decline since March and the biggest monthly fall since June 2020. June’s fall left the annual increase in prices at 10.5%, down from June’s 17-year high of 13.4%.
“The tapering of the stamp duty holiday on 30 June may have played a role in pushing down prices. The stamp duty concession had brought demand for properties forward, as potential buyers sought to benefit from a lower tax bill. Higher stamp duty payments since the start of July would be expected to weigh on demand and prices.
“But the stamp duty holiday has not been the only factor supporting house prices. Government support to household incomes and ultra-low mortgage rates have also played a role, factors which will persist at least in the short term. And the pandemic has had potentially long-lasting effects on property preferences, not least raising demand for larger homes in a world of more home working. Combined with fuel for property deposits provided by the substantial savings accumulated by households during lockdowns, the ingredients are in place to maintain house prices at current, elevated, levels.
“There are some headwinds in addition to the end of the stamp duty holiday. On measures such as the ratio of house prices to household incomes, affordability looks increasingly stretched. And despite a recovering economy, higher inflation and the prospect of some increase in unemployment when the furlough scheme ends means the outlook for household income growth is not all positive. But, the odds of a significant correction in house prices anytime soon looks small.”