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House price inflation in Manchester hits 12 year high. Growth in regional cities continues to overhaul London which dropped to 7th in the city house price growth rankings for 2016. Bristol is still the fastest growing city +9.6% but could be overtaken by Manchester in Q1.
City house price growth bounces back in Q4 2016
UK city house price inflation bounced back in 2016Q4 with average values rising 2.2%, up from 0.3% in Q3 when growth was impacted by the Brexit vote.
UK city house price growth 7.2% over 2016
Growth over 2016 was down slightly compared to 2015 (7.7%) but in line with the average rate over the last 18 months. Falling unemployment and rising earnings continue to stimulate demand in more affordable housing markets where buyers are using low mortgage rates to bid up the cost of housing.
Impetus for house price growth shifting
The headline rate of growth masks a clear shift in underlying growth at a city level. The impetus for growth is shifting from London to regional cities with more attractive affordability and headroom for further price inflation (Fig. 3).
Bristol was the fastest growing city in 2016
Average prices increased 9.6% down from 11.6% in 2015 but affordability pressures are set to result in slower growth in 2017.
Manchester records fastest growth for 12 years
Manchester recorded the second quickest rate of growth over 2016 at 8.9%. This is the highest rate of growth in the city for over 11.5 years (July 2005). As we have highlighted in recent city index reports, underlying market conditions remain strong in Manchester.
The supply of homes for sales is only just managing to keep pace with demand which is keeping the upward pressure on prices. The same is true in other regional cities such as Birmingham and points to continued, above average price inflation over 2017.
London drops to 7th in city growth over 2016
Average prices in London increased by 7.3% over the year. This is the lowest annual rate of growth recorded across London for over 3 years (July 2013). Stretched affordability levels, with the price/earnings ratio at 14x, points to a prolonged period of price re-adjustment in the London housing market over the coming years.
Other cities recording faster growth than London in 2016 include Oxford (8.1%), Portsmouth (8.0%), Southampton (7.9%), and Birmingham (7.5%).
Speed of price falls slows rapidly in Aberdeen
Aberdeen house prices posted something of a revival in the final quarter of 2016. House prices registered an above average increase of 2.9% over the final quarter. This reduced the rate of annual price falls to 3.2% as the market bottoms out after registering an 11% drop in average house prices since 2014.Fig.3 - Shifting focus for house price growth
This month’s Cities Index shows a continuation of the strong end to 2019. City house price growth is at a two-year high, at 3.9%. Coupled with a bounce in demand, which at 26% far exceeds the traditional new year boost, we see green shoots of returning market optimism. At a regional level, affordability of local stock is driving growth forecasts for Northern and Midlands cities, while in the South, the picture is more subdued.
Average UK city house prices have increased at an annual average rate of 4.4% per annum. While price falls in the latter part of 2018 suppressed the annual growth rate, these have dropped out of the annual growth calculation and explain the increase in the current annual rate of growth. The outlook for 2020 will be driven by affordability factors. We expect city house prices to increase by +3% over 2020 with above average growth in the most affordable cities and below average growth in cities across London and southern England.
UK city house price inflation is higher as prices start to firm up in London and Southern England. Large regional cities continue to post above average price growth on the back of rising demand and attractive affordability, supported by low mortgage rates. London is experiencing its highest rate of growth for 2 years and follows a period of modest price falls.
HPI is currently running at +2.4%, half the average growth over the last five years, and below average earnings growth. Time to sell has hit a 3 year high, while discount to asking price has widened across UK cities. Despite this, underlying market conditions still vary widely across large areas of the country.