Home-track has published its UK price index for the month of July and it appears there are three key themes.
Annual UK House Price Inflation rises:
The average house price increased by 1.4% in the three months to July, increasing the annual rate of house price growth by 6.0% from 2.3% in July 2020. Yet, this growth represents a slowdown compared to June, when there was an annual growth rate of 6.3%. Home values across the UK are now averaged at £234,000.
The highest price increases can be found in Wales (+9.4%), Northern Ireland (+9.0%) and the North West of England (+7.9%). There is continued price growth in Liverpool, as the city’s average property value increased by 9.4%, translating into an increase of £11,731 in the average house price to $136,721.
Additionally, demand for housing has increased strongly in Manchester and Belfast, with rates each at 7.7% and 7.5%. With an annual growth rate of 2.5%, London still trails behind the other major cities, but this is an improvement from 1.9% growth in March.
Lower levels of supply:
As of the beginning of this year, new listings for sale have been around 5% lower than they normally are. This does not replenish the total number of homes for sale, which is down 26% compared to last year. Comparatively, the total stock is down 33% compared to the same time last year and 25% less than 2016 and 2017.
In the current market, there are several factors contributing to the erosion of the stock of available homes:
Market activity is the first factor to consider. According to data from HMRC, sales completed in the 12 months up to June 2019 were up by 25%. Over the last year, one out of every twenty homes has been sold, compared with one out of every 25 two years ago. Moreover, sales agreements increased again in August, though they are lower than in April, they remain 21% higher than in Summer 2018/19.
The ‘reassessment of home’ among households as a result of the pandemic, coupled with the tax savings on offer due to the stamp duty holiday, resulted in higher numbers of homeowners making a move. This created churn in the market, but typically a home mover both buys and sells, creating demand and supply.
The second key factor is the increase in activity levels amongst new buyers and investors.
These buyers represent net new demand, as the vast majority have no property to sell. First-time buyers (FTBs) account for around a third of all buyers, and they have been increasingly active in 2021.
A final consideration is the supply of new housing, which slowed in 2021 due to the closure of the construction industry last year. New homes completions fell by 11% in England in the year to March. While supply has already started to pick up again, this dip will have had an impact on the total number of homes available to buy.
Markets moving faster:
Higher levels of demand amid constrained supply is not only resulting in price growth but also homes selling faster, with the average time between listing and sale subject to contract averaging 27 days in July, down from 42 days in July 2016.
However, not all markets are moving at a similar pace, in areas such as London (56-75 days), Aberdeen (53 days) and Oxford (41 days), it’s taking longer than the average length of time to sell a home. In London, this reflects the higher level of supply available (especially flats in the centre of the city) alongside more muted demand in central zones.
The low supply of houses for sale, especially single-family houses, and the limited choice of potential buyers, are likely to affect demand in the second half of the year and 2022, resulting in a natural slowdown in buyer interest because buyers want to enter this category The property waits for a suitable property to be found before taking action.
At the same time, the end of the stamp duty holiday and the ever-changing economic landscape, with the end of government support, will also restrain the market. However, this will not be sudden. We think there is more time for the “house reassessment”, so the overall demand will continue to be stronger than usual.
This will also support price growth through the end of the year, and we expect prices to increase by 4% to +5% in December.