• Annual consumer price inflation peaked at 5% and will now subside, providing support for real disposable incomes and demand for houses as early as Q1 2012
• London is bearing the brunt of higher costs of living and Eurozone debt crisis uncertainty with house prices down -0.3% over the month (-£1,000) and broadly flat over the year
• Looking ahead, modest growth will be supported by weak supply and low mortgage interest rates
Confidence in the housing market has taken a knock as the dual effects of the Eurozone debt crisis and high inflation in the UK rein in demand. According to official Land Registry data, the number of transactions in the market is down 3.3% in the year to September as average time to sell in the market has also increased.
House prices fell at their fastest rate since December 2010 – contracting by 0.5% over the month to November.
House prices are now 2.1% lower in November 2011 compared to a year ago. Dual effects of rising costs of standard of living – encapsulated by consumer price inflation of 5.0% in October and constrained lending in mortgage markets in the wake of the Eurozone sovereign debt crisis have both halted price increases.
We expect consumer price inflation to ease into next year, providing respite for household disposable incomes in real terms, and therefore shoring up confidence in the housing market. However, the effect of the Eurozone sovereign debt crisis is at this stage unclear, as a fallout in the European banking sector is likely to impact the beleaguered mortgage and credit markets in the UK. On the whole, house prices have behaved surprising resiliently as supply remains weak, but confidence will be tested in the coming months.
The methodology behind the Poll of Polls is unique in that it uses all of the major national house price and asking price indicators and weights their results according to the historical accuracy of the various indices. It also captures all residential properties, rather than only those which have been sold or are for sale, by incorporating the stock of residential properties in England and Wales.
The PoP, therefore, provides a more complete analysis of house prices than most other measures of house price movements, which only tell part of the story as they are based on a single set of data.
Robert Bartlett, Chesterton Humberts’ CEO, comments:
“The economic uncertainly engulfing Europe has begun to affect house prices in London even though the capital was relatively unscathed by the recession and its aftermath. The contraction in financial services has brought a few properties onto the market but for the most part, home owners in the capital are sitting tight and stock shortages continue to be an issue. It is mainly this lack of stock, coupled with continuing international buyer interest, that is maintaining the positive increase in London values.
“The rest of the country continues to experience far more difficult conditions. London is the only region where house prices are higher than a year ago. Country Vendors are only seeing buyer interest when they are being realistic in the initial pricing . However,, buyers should not be over-optimistic on achieving heavily discounted values as the majority of sellers are not being forced into a sale borrowing rates remain at current levels.”
Douglas McWilliams, Chief Executive of CEBR, comments:
“This month’s House Price Poll of Polls shows what we expected – prices being bid down by prospective buyers who are experiencing rising costs of living, weak job security and tepid wage growth. The Eurozone debt crisis brings about the prospect of stagnant growth in some of the UK’s largest export markets, which has implications for British jobs and confidence in the economy. Indeed, the ongoing uncertainty is likely to affect access to lending as UK banks become more cautious of their overseas debt exposures”.