On an annual basis average house prices have increased by 1.9%. This is the first uptick in the annual rate since April 2011 and the largest rise since December 2010.
Peter Williams, housing market specialist and chairman of Acadametrics, said this sudden change in the annual rate requires explanation, lest it be misinterpreted.
He said: “The May annual rate has, in fact, been considerably influenced by the events that took place in March and April of last year, when there was a rush by buyers at the top end of the market to complete their purchases prior to the introduction of an additional 1% stamp duty tax on properties costing £1 million or more.
“This came into being on 6th April 2011. It had the effect of raising average house prices in March and April 2011, only to be followed by a drop in average house prices in May and June 2011, when buyers at the top end of the market became conspicuous by their absence.
“Specifically, the May 2011 average price was brought down by the lack of activity in sales of £1 million plus properties. This is one cause of the rise in prices, this month, year on year.”
Williams said although there is still less activity in the £1 million plus housing market than there was in March and April 2011, the top-end of the market has come back.
“This, together with an increase in activity in the buy to let sector of the market, are the main reasons why prices are 1.9% higher than a year ago,” he explained.
The lender house price indices are not reporting a similar annual pattern for two reasons.
Firstly a large number of the high-value transactions are for cash, on which we report but on which the lenders do not.
Secondly many lenders restricted loans in excess of £1 million and were less engaged with this market-sector; hence their data are less influenced by activity at the top end of the market.
Regional picture
Just three regions in England and Wales are showing positive movements in house prices, with the remaining seven regions continuing to experience house price declines, reflecting sharp regional economic disparities.
Acadametrics reported a -2.3% decline in house prices in Yorkshire & Humberside where unemployment is currently around 9.8%, whilst house prices in the South East, where unemployment is 6.5%, are falling by -0.4%.
Williams said the market should expect regional differentials to grow and regional/local housing markets will reflect this as will the overall index.
A second negative factor is the likely course of mortgage interest rates, claimed Williams.
He said: “Mortgage rates have been rising reflecting the increased regulatory capital requirements imposed on lenders – more capital has to be set aside to cover the risks of lending and this both limits the funds available for mortgages and increases costs.
“Although a Bank of England base rate increase may still be some way off, probably in 2013, it is highly likely that the base rate will eventually go up and this will add to the pressures in the market.”
The government has estimated that there are 1 million frustrated buyers who cannot raise a large enough deposit and/or afford the loan they need to buy the home of their choice.
Their continued absence, along with the pressures now being felt by some existing borrowers who have survived the downturn in large part due to low interest rates, are contributory, said Williams.
“Offsetting these two factors is the continued under-supply of new homes which places a floor under existing prices,” added Williams.
Transactions
Housing transactions in March and April this year were distorted by the effects of the stamp duty holiday for first-time buyers on properties costing between £125,000 and £250,000.
March saw a surge of purchases beating the tax deadline of 26th March.
April’s figures were suppressed because these entrants to the housing market had brought forward their purchases.
May transactions appear to have returned to more ‘normal’ levels, at least if one defines normality as the housing market after December 2007.
Acadametrics estimates that transactions in May, for England and Wales, on a non-seasonally adjusted basis, totalled some 60,000 properties.
This estimated figure for May 2012 represents 67% of the long term average for the month of May, calculated over the period 1995 – 2011, this percentage being in line with that experienced on a monthly basis over most of the past twelve months.
Williams added: “It is hard to see transactions doing anything other than flattening out given limited effective demand, low confidence and limited mortgage supply.”
