As with any national obsession, the sheer amount of data now available on the state of UK house prices is mind-boggling. Every week a new house price index is published and the industry and the rest of the country pore over the detail in an attempt to get some idea of where house prices are heading.
But, which index do you trust and which tells the real story of the state of UK house prices? I hate to say this, but probably none of them. Each index has a different methodology and it is important for the seasoned house price index watcher to be aware of these differences.
A regional market
All indices which refer to the average UK house price should be taken with a large dose of salt – after all, the housing market in the UK is very much a regional one. At any one time Northern Ireland house prices may be rocketing, while the same may not be true for the South West. When we talk of the slowing down of house prices in the UK, there are still bound to be pockets across the regions where house prices are still increasing at a startling pace.
It is, however, possible to get a feeling of the tone of UK house price levels from the various indices. At the moment there is much talk of a slowdown, although this has not stopped HBOS from revising its prediction of house price growth from 4 per cent to 6 per cent in 2007.
Nationwide’s recently published figures for July – even though it was not even over at the time of publication – show that house price growth ‘stalled’. The average price of a property increased by only £200 from June up to £184,270 which in turn meant that annual house price inflation dropped back from 11.1 per cent to 9.9 per cent.
More robust
The government’s latest figures from the Communities and Local Government (CLG) show a slightly more robust set of results. Its mix-adjusted average house price for May this year revealed an increase from £209,454 to £211,056, giving an annual house price inflation for the three months to May of 11 per cent. To indicate the regional differences, the inflation rate in England fell from 10 per cent in April to 9.8 per cent in May, fell from 17.8 per cent to 15.5 per cent in Scotland, and in Wales fell from 9 per cent to 8.9 per cent.
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One of the other main house price indices from the Halifax revealed a 0.4 per cent monthly increase in house prices – representing the second monthly rise of less than 0.5 per cent. This left the standardised average house price – seasonally adjusted – at £197,461. Annual house price inflation, according to the Halifax, stood at 10.7 per cent while regionally, house prices increased in most regions during Q2 2007. Northern Ireland saw the biggest increase – 8.5 per cent – and Greater London was next at 4.9 per cent. There were, however, house price falls in the South West, at minus 0.4 per cent, the West Midlands, at minus 1.1 per cent, and Wales, at minus 2.8 per cent. However, we should set those declines within our recent historical experience and remember that those very same regions have acheived marked rises over the last five years.
These sorts of figures indicate a general ‘cooling off’ for UK house prices through 2007. The high teen annual increase levels of our recent past are now being pushed down into single figures. This downward pressure on house prices is also likely to continue especially given the numerous increases to the Base Rate we have seen since Summer 2006.
Looking at current events
If we’re looking at other areas which may have an effect on the income available for housing then we must look at current events. The devastating floods in Yorkshire, the Midlands and the South West over the last month have had an impact on farming land and we can therefore expect food prices to rise. We should also not forget that there has been little growth in ‘real earnings’ this year and therefore the UK’s borrowers are ,in general, having to fund rises in the cost of living on the same monthly income.
Of course, one big unknown at present is the impact Home Information Packs (HIPs) will have on the housing market – while they have only been introduced for four-bedroom properties this month, it is likely that the rest of the housing stock will come on board at some stage in the months ahead. Could we see a rush to put houses on the market before HIPs are necessary for all other properties? How will any ‘artificial’ boost to the number of properties up for sale impact on the level of house prices?
While it would be fair to say that UK house price increases are expected to be more modest in the near future, we are still talking about ‘rises’ as opposed to ‘crashes’. As the Halifax index points out, the economic fundamentals necessary to support house price growth are still very much evident. The country’s economic growth continues above the long-term average and we have also seen an increase in the numbers of those in employment in the past year. And even with the government announcing it is to build substantially more new homes over the next 15 years or so, the UK will still have a shortage of housing supply for the foreseeable future. All this points to rising, but modest, house price levels in the future and certainly no sign of a slowdown in our ongoing obsession to see where house prices go next.
