All Houses, All Buyers Index (1983=100)
Index (seasonally adjusted) 471.3
Monthly Change 2.2%
Annual Change 16.0%
Standardised Average Price (seasonally adjusted) £145,610
Key Points
* House prices increased by 2.2% in January, demonstrating the continuing strength of the market. Annual house price inflation stands at 16.0%.
* The low stock of second-hand homes for sale is contributing to the continuing upward pressure on house prices in recent months. Halifax Estate Agents – one of the country’s largest networks – confirms that this trend has continued so far this year with property listings lower than a year ago.
* The average price paid by a first-time buyer breached the £100,000 barrier for the first time in January following a 22.6% rise in the price paid by first-time buyers over the past year. A year ago, the average price for a first-time buyer was £82,968.
* The economy is expected to grow more rapidly in 2004 than during the past three years, which should stimulate further increases in employment, therefore further underpinning the most fundamental pillar supporting the housing market.
* Whilst increasing interest rates will have an adverse effect on housing affordability, the likely scale of the rise in rates will mean that mortgage payments will remain low as a percentage of earnings. Mortgage payments currently account for 13% of gross earnings. Should base rates rise to the City consensus figure of 4.5%, this would rise to around 15%, below the long-run average of 21%.
* Halifax research, to be published shortly, shows that buying a home is out of reach for key public sector workers - nurses, teachers and police officers - in half of the UK's major postal towns. Housing affordability problems for key public sector workers have previously been more of an issue in London and the South East of England. Nationally, the current situation is worst for nurses and firefighters with the average house price now being almost 6 times the average salary for both occupations.
ABOUT THE HALIFAX HOUSE PRICE INDEX
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, Shane O'Riordain, General Manager, Group Economics, said:
"The housing market has started the year strongly with prices increasing by 2.2% in January. On an annual basis, prices are up by 16%. A strengthening economy should continue to support a strong labour market during 2004, underpinning healthy housing demand. Interest rates are set to rise further this year, with a further increase possible this week, which will act as a brake on the market. The extent of the rise is, however, expected to be modest and will, therefore, cause few problems for the majority of homeowners."
The economy is gathering pace and the labour market remains very strong……
The UK economy gathered strength during 2003 with the pace of activity accelerating further at the end of the year. Gross domestic product (GDP) increased by 0.9% in Quarter 4, the highest quarterly rate of growth for almost four years. Overall, the economy grew by 2.1% in 2003, representing a modest improvement on the 1.7% increase in the previous year, but remaining below the UK’s historical average rate of growth.
The labour market has been remarkably strong over the last few years despite the relative weakness of economic growth during much of 2001-2003. The number in employment stood at 28.15 million in the three months to November 2003, according to the latest figures from the ONS; up 186,000 from a year earlier. Unemployment continues to decline with a further drop in the claimant count of 8,300 in December 2003, to 908,200; 26,900 lower than in December 2002. The economy is expected to grow more rapidly in 2004 than during the past three years, which should stimulate further increases in employment, therefore further underpinning the most fundamental pillar supporting the housing market.
Interest rates set to increase again….
The continuing pick-up in the economy has strengthened the case for a further rate rise in the near term. As a result, an increase in rates at this week’s MPC meeting looks possible, although the pound’s recent strength could persuade the Committee to sit on its hands for another month. Either way, another rate rise is expected soon.
Further modest interest rate rises are expected later in the year to dampen the rise in inflationary pressures caused by stronger economic growth. We predict that UK bank base rates will end the year at around 4.5%. Higher rates will put the brake on the pace of house price growth, causing it to ease during the course of 2004.
But affordability will remain good…
Whilst increasing interest rates will have an adverse effect on housing affordability, the likely scale of the rise in rates will mean that mortgage payments will remain low as a percentage of earnings. Mortgage payments currently account for 13% of gross earnings for all new borrowers. Should base rates rise during 2004 to the City consensus figure of 4.5%, mortgage payments to earnings would rise to around 15%, below the long-term average of 21%.
Property shortages are adding to the upward pressure on house prices….
The low stock of second-hand homes for sale has contributed to the continuing strong upward pressure on house prices in recent months. Figures from the Royal Institute of Chartered Surveyors (RICS) show a 9% fall in the number of properties for sale in the final quarter of last year. Halifax Estate Agents – one of the country’s largest networks – confirms that this trend has continued so far this year with property listings lower than a year ago.
The average price paid by first-time buyers has broken the £100,000 mark....
The average price paid by a first-time buyer breached the £100,000 barrier for the first time in January following a 22.6% rise in the price paid by first-time buyers over the past year. A year ago, the average price for a first-time buyer was £82,968.
Despite the historically low level of mortgage payments in relation to income for a typical new mortgage borrower, the much more rapid rise in prices compared with earnings over the last few years, has led to a significant reduction in the number of first-time buyers. Figures from the Council of Mortgage Lenders (CML) show that the number of first-time buyers fell by one-third last year, from 526,000 in 2002 to 355,000 in 2003, the lowest since records began in 1974 and 185,000 below the average for the preceding five years. First-time buyers represented only 29% of all buyers last year compared to 38% in 2002.
Key Workers’ affordability…..
The main groups of "key workers" in the public sector have shared the difficulties faced by first-time buyers in getting on to the housing ladder. Separate research by the Halifax released later this week shows that buying a home is out of reach for key public sector workers - nurses, teachers and police officers - in half of the UK's major postal towns. Housing affordability problems for key public sector workers have previously been more of an issue in London and the South East of England. Nationally, the current situation is worst for nurses and firefighters with the average house price now being almost 6 times the average salary for both occupations.
