Key Points
- House prices fell by a seasonally adjusted 0.5% in February, partly offsetting the gains recorded in December and January. Overall, prices have risen by 0.8% since July 2004.
- The annual rate of house price inflation continues to ease, falling from 13.7% in January to 12.1% in February. This is the lowest annual rate since December 2001 (11.7%).
- Estate agents appear to be seeing a stabilisation in activity. Halifax Estate Agents recorded the first upturn in sales agreed for six months in January: a development that was repeated in February. The latest RICS survey reported that the number of new buyer enquiries showed no significant change for a third successive month in January following a marked decline during much of the second half of 2004.
- Mortgage payments for the average new buyer have risen from a 20 year low of 13% of the borrower's gross earnings in September 2003 to 20% now. The proportion is just above the 19% average for the past 20 years and remains well below the 34% peak in 1990.
Commenting, Martin Ellis, Chief Economist, said: "House prices fell by 0.5% in February following increases in December 2004 and January 2005. This continues the mixed pattern of monthly price rises and falls recorded since last summer and is consistent with a gradual slowdown in house price inflation. The continuing slowdown in house price inflation from a peak of 22.1% in July 2004 to 12.1% in February and an overall increase in prices of 0.8% since last July confirm the easing in house price growth.
"Estate agents are reporting signs of a stabilisation in activity, which has fallen by around a third since last summer, with a recent increase in the number of sales agreed and a levelling out in the level of new buyer enquiries following a marked decline in the second half of 2004.
"The labour market is strengthening further with the number of people in employment rising by nearly 300,000 over the past year. This ongoing development continues to provide a solid support for the housing market, helping to maintain its sound underlying health."
The latest Bank of England figures confirm that there has been a significant decline in housing market activity since last spring. There was a decline in the number of loans approved for house purchase to 79,000 in January (seasonally adjusted) from 82,000 in December 2004. Despite this decline, the number of loans in January was higher than in November 2004 (76,000).
Estate agents, however, are reporting signs of a stabilisation in activity. Halifax Estate Agents recorded the first upturn in sales agreed for six months in January: a development that was repeated in February. The latest RICS survey similarly reported the first rise in newly agreed sales since April 2004 in January. Additionally, the number of new buyer enquiries showed no significant change for a third successive month in January following a marked decline during much of the second half of 2004, according to RICS.
Mortgage payments for the average new buyer have risen from a 20 year low of 13% of the borrower's gross earnings in September 2003 to 20% now, reflecting the increase in interest rates since late 2003 and the ongoing strength of house prices in late 2003 and the first half of 2004. The proportion is just above the 19% average for the past 20 years and remains well below the 34% peak in 1990.
The latest official figures confirm that the UK economy grew by 0.7% between the third and fourth quarters of 2004. This is slightly ahead of the economy's long-term average rate of quarterly growth of 0.6%. It is notable, nonetheless, that consumer spending growth eased from 0.6% in 2004 Q3 to 0.4% in 2004 Q4; the smallest rise since 2003 Q1.
The number of people in employment continues to rise, reflecting the ongoing strength of the economy, with an increase of 90,000 in the three months to December 2004 compared with the three months to September 2004 and up 296,000 on a year earlier. The strength of the labour market remains a key factor underpinning the housing market.
A strengthening in the housing and labour markets over the next few months may trigger another interest rate rise. We believe, however, that there will be continuing evidence of a slowdown in both the housing market and consumer spending growth, which could be sufficient to avert another increase in rates and provide scope for the Bank of England to cut rates later in the year.
