Summary of findings:
- House prices grew by 7.9% in the year to March - the first time the annual growth rate has fallen below 10% since June 2001.
- Monthly price fall the largest since June 1995.
- Yorkshire and Humberside saw the fastest annual growth, London the slowest.
Commenting on the figures Alex Bannister, Nationwide's Group Economist said: “When seasonal factors are taken into account, the price of the average house fell by 0.6% in March. While this is the biggest monthly fall in prices since June 1995, looked at in context it confirms our view that the market is experiencing a soft landing. The fall in March follows small rises in January and February and is consistent with our expectation that house price movements in 2005 would be characterised by rises in some months and falls in others. Seasonal adjustments hide the fact that the average house price actually increased by about £1,000 in March. The annual rate of house price inflation fell to 7.9% from 10.2% in February - its slowest rate since June 2001. The price of a typical property is now £153,876, just over £11,000 more than in
March 2004.
“While levels of housing market activity slowed in January with approvals falling back to 79,000 from 82,000 in December, we do not believe that this signals a continued slowdown in activity. Rather we expect the number of approvals will have bounced back in March to reach about 84,000, given the favourable economic conditions of low unemployment and relatively high consumer confidence.
“There seems to be a little more breathing space on the timing of any change in UK interest rates. While two members of the MPC voted for a quarter point rise in interest rates this month, preferring to pre-empt any inflationary pressure, the minutes of the March meeting reveal that the majority felt that risks to inflation were sufficiently low to warrant waiting until at least next month for further information. Evidence of a continuing gentle slowdown in the housing market as shown by the latest data is likely to reinforce this view. However there continues to be some risks to inflation, not least from developments in the US, and the markets continue to factor in an increase in rates by the summer.
“We believe that homeowners and buyers are becoming increasingly realistic about the potential for further house price growth. While expectations came down to earth in London a year ago, it is only recently that buyers in the rest of the country have downgraded their view of future house price inflation.
“The uncertainty over interest rates may cause house buyers to be a little more cautious in the coming months, but the economic fundamentals still look fairly good. Recent steady growth in earnings and rising employment and equity prices has helped to underpin consumers’ confidence. Nationwide’s own survey of confidence showed that consumers remain optimistic and the relatively neutral Budget is unlikely to have a negative impact on sentiment. The increase in the stamp duty threshold, while limited in its effect in the South, is particularly welcome for first-time buyers and movers in lower priced areas. In Northern Ireland for example, the proportion paying stamp duty as a result of the changes falls from 85% to 30% whereas in
London the proportion falls from 99% to 91%.
“While the change is welcome, particularly for first-time buyers outside of the South, it will have a limited impact on overall house prices. We therefore retain the view that the market is settling down and that we will continue to see small changes in house prices in either direction over the next few months with overall prices rising by between 0% and 5% in 2005.
“At the regional level there remains a North-South divide with prices growing most quickly in the North of England and in Wales, Scotland and Northern Ireland. The fastest annual rate of growth is in Yorkshire and Humberside (15.5%) followed by Scotland (15.4%), the North West (14.9%) and Wales (14.7%). In the South prices have continued to rise more slowly. London recorded the slowest increase in prices at 3.8% followed by the Outer Metropolitan Area (4.9%) and the South East (5.3%). This pattern is also reflected in the data at a local authority level. Hyndburn in the North West experienced the fastest annual rate of growth in the first quarter, and seven out of the ten highest growth authorities were in the North of England, Scotland or Wales. In contrast six of the ten authorities with the slowest annual rate of growth
were in London and the South East.
“However the North West of England has seen the rate of growth slow down very rapidly – from an annual rate of growth of 24.6% at the end of 2004 to 14.9% at the end of the first quarter of this year. Interestingly this deceleration is similar in magnitude to that witnessed in London a year earlier. Affordability seems to be the key to this. Mortgage payments as a proportion of take home pay has been increasing across all of the regions over time, but hit higher levels in London and the immediately neighbouring regions much earlier and this is when price growth began to slow.”
