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August 2015 - Hometrack UK Cities House Price Index

On 25 September, 2015
  • City level house price inflation is running at 8.3% per annum, up from 6.6% in May as rising demand, higher transactions and a scarcity of supply keep the pressure on city house prices.
  • Compared to August 2014, annual growth is higher in five cities, led by Edinburgh and Glasgow. Across the other 15 cities, the annual rate of growth is slightly lower.
  • The pricing discount between London and other major regional cities is at its widest level for 20 years. This highlights a seemingly over-valued London market, on a price/earnings basis, and the prospect of further price growth to come in the large regional UK cities.

The gap between house prices in London and other major regional cities is at its widest for 20 years, according to the August 2015 UK Cities House Price Index data. Overall city level house price inflation is running at 8.3% up from 6.6% in May.

City level house price growth up for fourth month
City level house price inflation is running at 8.3% per annum, up from 6.6% in May as the growth in demand for housing continues to exceed supply. A 38% uplift in mortgage approvals for home purchase in the last 6 months shows the scale of mortgage based demand attracted by ever lower mortgage rates. A similar expansion has been recorded in sales volumes.

 

Table 1- UK 20 city index summary, August 2015

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Source: Hometrack House Price Indices

Table 2 - UK 20 Cities House Price Index, August 2015
Source: Hometrack House Price Indices

Despite the recent increase in market activity, the rate of housing turnover remains low by historic standards at just 5%, or a move every 20 years. Many sales are to buyers with nothing to sell which creates a greater imbalance between supply and demand as stock is replaced at a slower rate. Our latest analysis shows that half of buyers in the first half of 2015 had no property to sell (first time buyers and investors buying with a mortgage or cash). Only a recovery in the rate of moving amongst existing owners or more new supply will ease the current housing scarcity, something that seems unlikely in the near term.

The pricing discount between London and other major regional cities is at its widest level for 20 years.

Fig. 1 – City house price inflation (%yoy)
Source: Hometrack House Price Indices
Fig. 2 – Average price discount from London
Source: Hometrack House Price Indices

Broader spread of growth
At a city level the highest rate of growth is 11.2% in Cambridge while the lowest is in Aberdeen at -2%. Compared to a year ago, just five cities are registering a higher rate of annual growth led by Edinburgh and Glasgow. Across the remaining fifteen cities growth has edged slightly lower although the three month growth rates suggest continued near term price rises.

Widest pricing gap between London and major cities
The rise of London house prices has seen the gap between London and other regional cities widen to its greatest level for 20 years. Cities such as Glasgow have average prices almost 75% lower than London with those in Bristol 47% lower. This pricing differential could well assist city regions attract new investment as investors and developers seek to expand in more affordable markets.

The price/earnings ratio for cities shows London now exceeding 12x while many other major cities have ratios that are on a par with their long run average. With mortgage rates still well below their long run average, this highlights scope for further house price inflation as the benefits of economic recovery start to spread across more households.

Fig. 3 – Price to earnings ratio - selected cities
Fig. 3 – Price to earnings ratio - selected cities
Source: Hometrack House Price Indices / ONS
August 2015 - Hometrack UK Cities House Price Index
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