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There has been continued growth in large regional cities, despite house price inflation slowing to 5.4%. ZPG listings data shows discounts to asking prices are narrowing, indicating market conditions are improving across cities outside south eastern England. Increased discounting can be seen in London, where price growth has slowed to +1.8%.
City house price growth slows to 5.4%
UK city house price inflation has slowed to 5.4% as weak house price growth in London offsets above average growth rates in large regional cities.
Four cities registering growth of over 7%
Edinburgh remains the fastest growing city (+8.2%) followed by Birmingham, Glasgow and Manchester where average prices are rising at over 7% per annum.
Prices falling in three cities
House prices are falling in nominal terms across three cities - Oxford, Cambridge and Aberdeen - a result of weakening demand, affordability and economic factors.
Discounts to asking prices are narrowing
Analysis of ZPG listings data reveal how underlying market conditions continue to improve across cities outside south eastern England. The discounts sellers are accepting to achieve a sale are shrinking. The average discount over 2014-2016 was 3.2% which has reduced to 2.9% in 2017 across England. A different system for selling homes in Scotland means sales prices are higher than listings prices (see Fig.2 and Fig.3).
Manchester and Birmingham see discount halve
Birmingham and Manchester have recorded the greatest decrease in discounts over the last year. Figure 2 shows how the discount has more than halved from 6% in 2013 to just 2.7% in 2017. This is more evidence of the underlying strength of the market in these cities. Not only are headline prices growing at 6%-8% per annum but discounts to listing price are narrowing.
A similar pattern has been recorded for cities outside southern England (Fig.3). This supports our view that there is further above average house price growth to come over 2018.
Sales prices at a premium in Edinburgh and Glasgow
The Scottish system for selling homes is different to England and Wales with property typically marketed as ‘offers over’ a listing price. Our analysis shows that sales values are at a premium to listings prices. The premium has increased over 2017 to average 4% in Glasgow and 7% in Edinburgh (Fig.3). This is consistent with robust levels of price inflation currently being recorded in these cities and reports of a shortage of homes for sale.
Increased discounting in London as demand weakens
London has registered increased levels of discounting. In 2014, when the rate of house price growth was almost 20% per annum, the average discount to asking price was just 0.5%. Weaker, price sensitive demand has seen the discount widen to an average of 4% with the largest discounts of up to 10% being registered in inner London where price falls are most concentrated.
Larger discounts point to headline price falls
The level of discounting provides insight into the strength of underlying demand. Asking prices tend to act as the ‘shock absorber’ to softer pricing as demand weakens. However, once discounts get close to 10%, this is when falls in headline prices start to occur.
Fig.3 – Asking to achieved discount by city
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.