The latest index figures suggest that the UK house prices are rising strongly although it is interesting to see that other reports suggest that growth in the prime central London market appears to be waning.
Data from the Halifax shows that in May prices increased by 3.9%, a sign that growth in the market does not seem to be softening. Most experts agree that monthly figures can be volatile so it is interesting that the Halifax data also shows the quarterly figures to be strong.
House prices in the latest three months from March 2014 to May 2014 were 2% higher than in the preceding three months of December 2013 to February 2014, according to the Halifax. House price change on this measure has now remained steady in a narrow range of 1.9% to 2.3% since June 2013.
Prices in the three months to May were 8.7% higher than in the same three months a year earlier. This was marginally higher than in April when it was 8.5%.
But there has been a sea change in the prime property market in London which has been leading overall growth. London has reached the top of the market with prices stabilising and the number of registered buyers falling, according to the latest report from agents Marsh & Parsons.
Overall the supply of property has increased by 26% in London since March 2014 while the number of registered buyers per property has fallen from 24 in January 2014, to 16 at the start of June, the firm says, adding that quarterly house price growth in prime central London has slowed to 2.1%, half the 4 % increase witnessed in the first quarter of 2014 and in the last month there has been very little change in property prices as growth has stalled.
Sales are down 17% year on year, according to residential sales and lettings firm W.A. Ellis. Partner Richard Barber says it is the rate of transaction which is of most concern and a strong barometer of confidence within the upper end of the London market. In May 2013 some 932 properties in total were sold throughout London. However, this May, there have only been 774 sales, almost a 17% reduction in transaction levels year on year.
He also points out that 25% of the house stock currently available on the market has been reduced in price, indicating an initial optimism now countered with a distinct sense of realism.
The firm's data also shows that year on year the average rate per square foot achieved on houses is 1% down from the £1,876 per square foot that was being achieved in the first quarter of 2013. In the first quarter of this year it was £1,858 per square foot. Knight Frank is also reporting a reversal in fortunes for the sector and says that the supply of property is growing faster than demand as buyers have become more cautious about the possibility of a price correction.
The average number of applicants registered in May was third down on the same month in 2013 while stock levels continued to climb steadily. Also, the average number of viewings per property before an offer is made is 70% higher than last year.
The impact of last month's public holidays and poor weather aside, there is a growing sense the market is pausing for breath, which typically happens after a period of prolonged growth. With the general election next year, which typically creates an air of uncertainty, Knight Frank is expecting price growth in prime central London to slow to zero in 2015.
If you speak to economists, they voice concerns about the rate of house price growth because homes are becoming more expensive to buy despite very weak growth in earnings. While rising house prices are indicative of a recovering economy, questions are being asked over its sustainability.
According to experts a chronic lack of supply is to blame. Azad Zangana, European Economist with Schroders has called for the government to enter the market to provide additional supply.
He has pointed out that judging whether the market is now in a bubble is difficult but before the market becomes dangerously overheated, it may soon be time to take precautionary action.
The obvious action would be for the government to halt its stimulus measures, or for the Bank to raise interest rates. However, there is little chance of the former given the general election next year, while the Bank is still concerned by the fragility of the economy, along with their estimates of the amount of deflationary spare capacity in the economy.
A more likely course of action is likely to come via the mortgage lending rules. Zangana says that the Mortgage Market Review is the first step in the use of macro-prudential policy and predicts that eventually, we could see limits to loan to value (LTV) ratios, introduction to limits to loan to income multiples, and possibly even more micro measures such as time limits on mortgages etc. The Bank of England's Financial Policy Committee (FPC) announced last month that it expects to be ready in June to set the interest rates that should be used for the affordability tests in the MMR.
However, the only real policy that has any chance of working in the long term is the provision of additional supply. Construction of new homes needs to double just to stabilise supply relative to population growth.
But the private sector has historically never been able to produce the number of homes that are now required, regardless of market conditions. So Zangana believes that the government must consider entering the construction market, and if necessary, to compete with home developers that continue to horde land. If they fail to do so and house prices continue to rise aggressively, the UK could find that the average household will no longer be able to get on to the housing ladder, which will ultimately raise demand for social housing, and therefore costs for the exchequer in the long run. It's time to build again.
Ray Clancy
Editor Property Wire
