Key Points
- House prices were unchanged in April. Overall, there has been no movement in UK house prices since January.
- The annual rate of house price inflation has declined to 7.8% in April. This is very close to the historical long-term average of 8%.
- The latest indicators provide further evidence that activity levels are stabilising after a period of decline last year. The number of loans approved for house purchase increased for the second successive month in March, according to the Bank of England, but was still 26% lower than a year ago. RICS reported a firming in housing activity in the first quarter of 2005 with newly agreed sales showing little change in March following two successive monthly rises. This pattern is confirmed by Halifax Estate Agents.
- The house price to earnings ratio has dropped from a peak of 5.63 in September 2004 to 5.48 in February, according to the latest data. This development, which we expect to continue, will make it a little easier for first-time buyers to enter the market.
- Halifax calculates that the total value of household sector wealth in the UK increased by £589 billion (12%) during 2004 to £5,511 billion. The increase was due to a combination of further house price rises, which boosted net housing equity by £335 billion (16%), and the continuing recovery in share prices, which increased financial wealth by £270 billion (9%).
- The value of households' net housing equity has almost doubled over the past five years, increasing from £1,225 billion at the end of 1999 to £2,429 billion at the end of 2004. In contrast, the value of households' financial assets rose by only 3% during this period, largely reflecting the decline in share prices during 2000-2002. Consequently, housing's importance in the household sector's balance sheet has increased during the last five years with net housing equity accounting for 44% of household wealth in 2004 compared with 29% in 1999.
Commenting, Martin Ellis, chief economist, said: "House prices were unchanged in April, and overall there has been no movement in prices at the national level since January.
The annual rate of house price inflation declined to 7.8% in April and is now at its lowest since June 2001; and has fallen from 22.1% last July. The annual rate is expected to continue to fall over the coming months.
The latest indicators also provide further evidence that activity levels are stabilising following a sharp downturn in the second half of last year. As a result, we appear to be entering a period of broad stability, particularly in terms of market activity. Sound fundamentals, particularly in the shape of the ongoing strength of the labour market and the low level of interest rates, should continue to underpin the market.
The easing in the house prices to earnings ratio over the past few months is expected to be sustained as earnings rise more quickly than house prices. This will improve affordability for first-time buyers, enabling more to get a foot on the housing ladder. This too will help to support the market."
The number of loans approved for house purchase increased for the second successive month in March, to 91,000 from 86,000 in February (seasonally adjusted), according to the latest Bank of England figures. This was the highest level since last August, providing further evidence that activity is stabilising although the number of loans was still 26% lower than a year ago.
RICS also noted a firming in housing activity in the first quarter of 2005 with newly agreed sales showing little change in March following successive rises in January and February. This pattern is confirmed by Halifax Estate Agents, which has seen a rise in sales since the beginning of the year.
ONS figures showed that the UK economy continued to perform well in 2005 Quarter 1 with gross domestic product (GDP) increasing by 0.6% during the quarter. Whilst this was slightly below the 0.7% rise in 2004 Quarter 4, it remained broadly in line with the UK's long-term average rate of growth.
The level of employment has risen further, reflecting the ongoing good health of the economy. The numbers in employment increased by 148,000 during the three months from December 2004 to February 2005 compared with the preceding three months, reaching a new record of 28.639 million.
Average house prices have fallen back slightly as a multiple of average earnings in recent months, reflecting the slowdown in house prices. As a result, the house price to earnings ratio has dropped from a peak of 5.63 in September 2004 to 5.48 in February, according to the latest data.
Halifax expects the house price to earnings ratio to fall further over the coming months as earnings rise at a more rapid pace than house prices. This development will make it slightly easier for first-time buyers to enter the market.
Halifax calculates that the total value of household sector wealth in the UK rose by £589 billion (12%) during 2004 to £5,511 billion. This increase was due to a combination of further house price rises, which boosted net housing equity – the total value of residential property minus mortgage loans outstanding - by £335 billion (16%) in 2004, and the continuing recovery in share prices, which increased financial wealth by £270 billion (9%).
Over the past five years, the value of households' net housing equity has almost doubled, increasing from £1,225 billion at the end of 1999 to £2,429 billion at the end of 2004. The value of households' financial assets, by contrast, rose by only 3% during this period, largely reflecting the decline in share prices during 2000-2002. Consequently, housing's importance in the household sector's balance sheet has increased with net housing equity accounting for 44% of household wealth in 2004 compared with 29% in 1999. Financial assets have fallen from 74% of total wealth to 59% over the same period.
