Key Points
- House prices increased by 1.3% in August, confirming that house price growth remains strong. The annual rate of house price inflation stands at 19.1%.
- There are signs that the number of homes being bought and sold is increasing. The end of the Iraqi war has boosted confidence, which coupled with the highest level of employment on record and the lowest interest rates since the 1950s, underpins strong housing demand. This week's Bank of England figures on the number of mortgage loans approved for house purchase showed a 15% increase from a seasonally adjusted monthly average of 96,000 during February to May, to an average of 110,000 in June and July.
- We expect the rate of house price growth to slow gradually over the remainder of 2003 and into 2004 as it becomes increasingly difficult for first-time buyers outside southern England to get a foot on the housing ladder. As a result, we are likely to see a more even pace of house price growth across the regions in 2004 than we have seen in recent years.
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 based on the largest monthly sample of mortgage data, typically covering 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 rose by a further 1.3% in August. Prices have increased at an average monthly rate of 1.1% over the past three months, ahead of the 0.6% monthly average experienced during the past 20 years.
Housing demand remains underpinned by a highly favourable combination of factors. The overall number of people in work reached a record level in the second quarter of 2003 with the ONS reporting a 63,000 rise in the number of people in employment in the three months to June to a total of 27.92 million. The number of people claiming unemployment benefit fell by 8,800 in July to 939,200, casting some doubt on the view that the underlying trend in unemployment is upwards. At the same time, interest rates remain at their lowest level since the 1950s, mortgage payments now account for 14.5% of gross income for a typical new borrower, one of the lowest percentages in the past 20 years.
Activity also appears to be on the increase following a lull between February and May when households' confidence was adversely affected in the run-up to the Iraqi war. According to Inland Revenue figures, the number of property transactions in England and Wales bounced back from a seasonally adjusted 103,000 in June to 115,000 in July, stopping the steady downward trend that had been in place since late last year.
This week's Bank of England data on the number of mortgage loans approved showed a 15% increase from a seasonally adjusted monthly average of 96,000 between February to May to an average of 110,000 in June and July.
Estate agents have also noted an improvement in confidence in the market with reports of more buyer inquiries, greater competition for properties and signs that more buy-to-let investors are coming back into the market.
We expect the rate of house price growth to slow gradually over the remainder of 2003 and into 2004 as the rapid increase in house prices in regions outside southern England over the past year or so make it increasingly difficult for first-time buyers, in particular, in these parts of the country to get a foot on the housing ladder. Accordingly, we are likely to see a more even pace of house price growth across the regions in 2004 than we have seen in recent years."
