Nationwide’s measure of house prices rose 0.5% month-on-month in April. The fact that this followed seven consecutive monthly declines means the EY ITEM Club wouldn’t want to read too much into April’s return to growth. However, combined with recent increases in the Halifax price measure and evidence of a pick-up in transactions from very low levels, the latest Nationwide numbers offer another sign that weakness in the housing market may have troughed.
This would be consistent with signs of a turnaround in the economy, still-solid job creation and improving consumer confidence. The prospect of inflation falling at pace, as well as households’ finances and sentiment improving, could further support the housing market as 2023 progresses.
However, the risk of a sustained correction in values hasn’t gone away. Average house prices still look very stretched on most affordability measures. The average interest rate on a new mortgage has increased by over 250 basis points in only 12 months and household incomes are still likely to fall in real terms over most of this year.
Martin Beck, chief economic advisor to the EY ITEM Club, says: “Nationwide’s measure of house prices in April broke a sustained run of falls by rising 0.5% month-on-month. This was the first monthly increase since last August and meant the annual rate of decline in prices eased to -2.7% from -3.1% in March.
“One month does not make a trend and, given the degree of volatility in house price measures, April’s rise in the Nationwide gauge could prove short-lived. But it’s consistent with other signs that weakness in the market may have bottomed out. The Halifax measure of prices rose in each of the first three months of 2023. While mortgage approvals were still very low in February, they increased for the first time since last summer. And survey evidence on new buyer interest and the availability of homes for sale has recently shown signs of life. On top of that, the economy may be turning a corner, aided by falling energy prices, with job creation continuing at a solid pace and consumer confidence recovering.
“On the other hand, house prices remain very high on most measures of affordability. Mortgage rates have seen a significant rise over the last year, with the average rate on a new mortgage increasing to 4.26% in February from 1.60% 12 months earlier. Borrowing costs could increase further if, as the EY ITEM Club expects, the Bank of England raises interest rates again this month. And while the prospect of rapidly falling inflation should reduce financial strains facing households, real incomes are likely to still fall over most of this year. Therefore, the risk of a sustained correction in house prices hasn’t gone away.”