This May, UK house prices dropped for the first time in three months, new data from Halifax reveals. The market is being characterised by and oscillating ‘push-and-pull’ effect as reduced supply forces prices up, straining finances and impacting sentiment.
House prices dropped by 0.1 percent in May having fallen last at a rate of 0.4 percent, in February.
Until May, the average house price was 2 percent more than the three months preceding before the growth rate began to slow once more.
Prices were 8.6 percent higher in comparison with March – May 2014; a 0.1 percentage point rise on April’s 8.5 percent.
Points of note
Considered on a three month annual basis, housing growth has remained at eight to nine percent since last October, with December (7.8 percent) the one exception.
Although current growth is less than 2014’s 10.2 percent July peak, it is astoundingly stable. A report by Nationwide, published a day before the Halifax study, indicated that annual growth had dropped to its lowest rate since August 2013: an annual rate of 4.6 percent.
From one angle, the reduced supply of houses for sale may be forcing prices up, but the 5.2 percent price-to-earnings ratio in April is sizeable; it wasn’t this high since April 2008. This shows just how overstretched finances are, which could result in capped price growth.
The Analyst view
Housing economist at Halifax, Martin Ellis, commented:
Housing supply remains extremely tight with the stock of properties available for sale currently at its lowest level for many years. At the same time, ongoing economic recovery, increasing employment, real earnings growth and very low mortgage rates are all supporting housing demand. This combination has kept annual house price inflation well above earnings growth although activity levels are subdued.
The imbalance between supply and demand is likely to continue to push up house prices over the coming months. Looking further ahead, the increasing level of house prices in relation to earnings is expected to dampen house price growth”.
In brief
There is a tug-of-war scenario: strained finances tugging one way and increasing demand, the other. This will most likely result in price growth remaining at eight to nine percent for some time to come.