* Strong housing demand, together with supply shortages, have maintained house price inflation at a high level this year. The market has remained very strong in northern England and Wales, in particular, and house price inflation in the south has picked up this year following a significant slowdown during 2003.
* We expect the housing market to begin to slow later in the year and into 2005. The cumulative effect of the increases in interest rates since November alongside other potential increases this year should constrain housing demand. The increasing difficulties that face aspiring first-time buyers should also exert downward pressure on housing demand, including in the north where there has been rapid house price growth in recent years.
* Recent official figures show that the number of private sector new houses completed in England in the first quarter of 2004 was 3% lower than in the same period of 2003. Whilst housebuilding has risen from the low levels of 2001, the number of properties being built is well below that required to keep pace with the rise in the number of households. This is contributing to the upward pressure on house prices.
The Halifax House Price Index is the UK's longest running monthly house price series with data covering the whole country going back to January 1983. The Index is typically based on around 15,000 house purchases per month, and covers the whole calendar month. From this data, a "standardised" house price is calculated and property price movements on a like-for-like basis (including seasonal adjustments) are analysed over time. Properties over £1 million are included and the index is seasonally adjusted with the seasonal factors updated monthly.
Commenting, Martin Ellis, Chief Economist, said:
"House prices increased by 2.2% in May, confirming the ongoing strength of the housing market. Strong housing demand, together with supply shortages, is maintaining house price inflation at a high level.
The market has remained very strong in northern England and Wales so far this year and house price inflation in the south has picked-up following a significant slowdown during 2003. We expect the north and Wales to continue to outperform the rest of the country over the remainder of the year, resulting in a further narrowing in the north/south divide.
Higher interest rates and the increasing difficulties that face aspiring first-time buyers should, however, exert downward pressure on house price inflation later in the year and into 2005, including in the north where there has been rapid house price growth in recent years."
First-time buyers account for less than 3 in 10 buyers…
The number of first-time buyers as a percentage of all homebuyers dropped back to 28% after successive increases in February and March. This proportion remains well below the long-term historical average of nearly 50%. The total number of first time buyers is likely to remain low this year following a 33% drop in 2003 to 355,000 due to the difficulties increasing numbers of potential first-time buyers are facing in getting onto the housing ladder.
Low levels of housebuilding add to the upward pressures on house prices…
Recent official figures show that the number of private sector new housing completions in England in the first quarter of 2004 was 3% lower than in the same period of 2003. Whilst housebuilding has picked up from the low levels of 2001 — the lowest since 1947 — the number of properties being built remains well below that required to keep pace with the rise in the number of households. At recent levels of housebuilding, we estimate that there will be a deficit of over half a million homes in England by 2021. This mismatch between the pace of building and the increase in the number of households is contributing to the upward pressure on house prices.
Mortgage approvals 23% higher on an annual basis…
The number of mortgage approvals to fund house purchases — a leading indicator of housing market activity - in April 2004 was 23% higher than in April 2003, according to the latest Bank of England figures. Whilst remaining very high historically, the number of approvals in April, at a seasonally adjusted 124,000, was lower than the average monthly levels in the first quarter of 2004 (127,000) and the final quarter of 2003 (130,000). We will, however, have to wait a few months to assess whether this represents the start of a genuine slowdown in the level of housing market activity.
