- Halifax’s measure of house prices showed a 0.4% month-on-month (m/m) rise in July. This contrasted with a fall in Nationwide’s index and offers some tentative, early, evidence that the housing market has not been seriously impeded by the tapering of the stamp duty holiday in June. Annual growth slowed to a four-month low of 7.6%, but this partly reflected the strength of price growth last summer, as the market began to recover from the first lockdown.
- The full end of the stamp duty holiday in September will give a better idea of how important the tax concession has been in supporting the market. But demand for properties and house price growth may not tail off much. The economic consequences of the pandemic appear to have prompted an upward shift in house prices. Some of those consequences, such as government support to households and ultra-low interest rates, will 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 mean the outlook for growth in household incomes is not all positive. But the odds of a significant correction in the housing market anytime soon look small.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“The latest numbers from Halifax showed house prices rising 0.4% in July. This reversed part of the previous month’s 0.6% month-on-month fall and left the average property price at just over £261,000, a little below May’s peak but still more than £18,500 higher than a year ago. Annual growth of 7.6% was the lowest since March, but the year-on-year comparison was depressed by comparisons with strong price rises last year as the housing market emerged from the first lockdown.
“July’s rise in prices on the Halifax measure contrasted with a fall in Nationwide’s index. But it offers some tentative evidence that the tapering of the stamp duty holiday on 30 June has not affected the housing market too much and that other factors have continued to support house prices. These include government support to household incomes and ultra-low mortgage rates. While the former, notably the furlough scheme, will finish in the autumn, there seems little prospect of interest rates rising until well into next year, even after August’s MPC meeting delivered a more hawkish tone. The pandemic has also had potentially long-lasting effects on property preferences, including a ‘race for space’ as people seek larger homes in a world of more home working. There is plenty of fuel for property deposits provided by the substantial savings accumulated by households during lockdowns. Meanwhile job and incomes losses during the pandemic have disproportionately affected younger, lower-paid, people who are generally not in the market to buy a property. So, there are good reasons to think house prices will stay elevated.
“The end of the stamp duty holiday at the close of September will give a better idea of how strong these supportive factors are. And the approaching end of the tax concession is not the only headwind facing the housing market. On measures such as the ratio of house prices to household incomes, affordability looks increasingly stretched. And despite the 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, overall, the odds of a significant correction in house prices anytime soon looks small.”