Press release

7 Mar 2023 London, GB

Halifax measure points to a resilient housing market – EY ITEM Club comments

Halifax measure points to a resilient housing market – EY ITEM Club comments

Related topics Growth
  • A 1.1% month-on-month rise in Halifax’s measure of house prices contrasted with a fall in Nationwide’s gauge, suggesting that the housing market is bearing up better under the pressure of higher mortgage rates and offering another sign that the economy is demonstrating an unexpected degree of resilience.   
  • That said, February’s rise left annual growth in prices at a modest 2.1% and heavily negative once adjusted for inflation. It’s also hard to see momentum in prices being maintained. Mortgage rates have come down in the last few months but are still much higher than a year ago. Meanwhile, households’ ability to take on and service debt is being squeezed by falling real incomes, and widespread predictions of a decline in property values will likely encourage some potential buyers to delay purchasing, weighing on demand.   
  • On the other hand, changes in the structure of the housing and mortgage markets, and a resilient labour market, will likely reduce the risk of forced selling.  An improving economic outlook as this year progresses may also limit how far house prices fall.  

Martin Beck, chief economic advisor to the EY ITEM Club, says: “Halifax’s measure of house prices had been stronger than the Nationwide measure in January, and this continued in February. According to Halifax, prices rose 1.1% month-on-month, versus a 0.5% fall in the Nationwide index. This was the biggest gap between the two measures since March 2021. February’s monthly gain left prices up 2.1% on a year earlier, unchanged from the previous two months.

“Based on the possibility that the Halifax measure is painting a more accurate picture of the housing market than its Nationwide counterpart, February’s strong gain in prices could be a reflection of mortgage rates falling back from their post-mini-Budget peaks and a healthy labour market. It also offers another sign that the economy is demonstrating unexpected resilience, despite the headwinds it is facing.

“However, the EY ITEM Club thinks February’s rise in prices is unlikely to be sustained. Even after recent falls, mortgage rates are still close to the highest in a decade. Households’ ability to service debts is also being squeezed by falling real incomes and widespread speculation that property values are heading for a sustained fall is likely to encourage some potential buyers to delay, weighing on demand and potentially making expectations of price falls self-fulfilling.  

“However, the EY ITEM Club still thinks a serious correction in prices should be avoided. Fewer home-owners are exposed to higher mortgage rates than in the past. The share of households who own their home outright has also risen, standing at 34.8% in 2021-22, up from 30.3% in 2005. Over the same period, the proportion of households with a mortgage fell to 29.5% from 40.3%, and the dominance of fixed-rate mortgages mean it will likely take time for higher borrowing costs to impact mortgagees’ outgoings.

“Meanwhile, the EY ITEM Club thinks unemployment will see only a modest rise, reducing the risk of a serious fall in prices. With job vacancies still high and surveys suggesting a shortage of workers in some sectors, employers may choose to keep, rather than shed, labour during the downturn. Greater forbearance by lenders, such as switching mortgage holders to interest-only deals, is likely to reduce the prevalence of forced selling. Moreover, the economy is expected to see a return to sustained growth from the second half of this year, as inflation falls back quickly, potentially boosting sentiment in the housing market and limiting the extent of price falls.”