House Prices Rise 0.3% But Annual Growth Slows

UK house prices rose by 0.3% in August, but annual growth has slowed from 3.5% to 3.2%, according to the latest residential property index from the Nationwide.

The figures reveal that the average house price is now £195,279 in the UK, and the lender’s chief executive, Robert Gardner, says that the drop in the annual growth rate was caused by a particularly high price increase in August 2014.

However, the annual rate of growth was the weakest since June 2013. Gardner explains: “This month’s data provides further evidence that annual house price growth may be stabilising close to the pace of earnings growth, which has historically been around 4%.

“However, survey evidence cautions that this trend may not be maintained unless construction activity accelerates. Surveyors reported the lowest ever number of properties on their books in July, whilst new buyer enquiries picked up.”

House Prices Rise 0.3% But Annual Growth Slows

He notes that UK house prices have shown strength recently, in comparison with other developed economies.

For example, house prices in the UK did not decrease by as much during the financial crisis, and even when they did fall, they quickly recovered to pre-crisis levels.

At present, UK house prices are around 5% higher than their pre-crisis levels, while prices are still much lower than the pre-crisis peaks recorded in Ireland, down 38%, Spain, down 36%, and the Netherlands, down 18%.

Gardner continues: “Clearly house price trends are determined by a wide range of factors, but labour market developments are amongst the most important. The strength of the UK labour market in recent years is a key reason why house prices have recovered more quickly.

“There is a strong correlation between employment and house price growth since the financial crisis across the major developed economies. House prices remain further below their pre-crisis peaks in countries where employment is also well below pre-crisis levels.

“Supply side developments also play an important role in explaining the divergence in house price performance. The UK experienced a much smaller increase in building activity in the run up to the financial crisis. As a result, there was much less of an overhang of unsold properties to be worked off in recent years.”

He concludes: “However, with UK house building running well below the expected rate of household formation in recent years and with demand for homes rising, a significant increase in construction activity is required if affordability is not to become stretched in the years ahead.”¹

Online estate agent HouseSimple’s Alex Gosling says that any belief that vendors are returning to the market is inaccurate.

He claims: “A boost to new stock levels in June suggested that we were finally starting to see some movement from sellers, but that momentum seems to have been short lived. The general election, which the market hoped would provide a catalyst for sellers, is long gone and property stock numbers remain well below normal levels.”

He thinks there are many reasons why people are not moving house, including the fact that they simply can’t afford to, as property prices have soared, or because they are not confident in the market, despite the strength of the economy and the extremely low mortgage rates currently on offer.

He suggests: “Somehow, sellers need to be encouraged back to the market because there are buyers galore waiting when they do. It’s a very attractive market right now for motivated sellers.

“The next few months are going to be important, as the property market looks to gather momentum heading into the last quarter of the year. We fully expected activity to drop off in the summer months, but come the autumn, the market needs to be replenished with stock to realign the supply versus demand balance.”¹ 

¹ http://www.propertywire.com/news/europe/uk-national-house-prices-2015082710913.html