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UK Cities House Price Index - February 2017

On 24 March, 2017
  • City house price growth running at 6.4%, down from 7.8% twelve months ago.
  • Manchester registers fastest growth of 8.8%, London drops to 10th in growth rankings.
  • Slower price inflation in high value cities follows static/falling sales volumes over last 12-36 months. Sales volumes expected to be flat over 2017 but down further in higher value cities.

City house price growth slows to 6.4%. Manchester fastest growing city as London slips to 10th in growth rankings. New analysis of city turnover reveals large increases and falls. Overall city turnover expected to be flat in 2017.

City house price growth 6.4%yoy

UK City house price inflation is running at 6.4% compared to 7.8% a year earlier and in line with the 5 year annual average of 6.5% per annum.

Manchester the fastest growing UK city

A continued slowdown in London house price growth, where the rate of annual price increases (5.6%) is at its lowest level since 2013, is acting as a drag on headline growth (Fig. 1). Above average rates of growth are being recorded in regional cities such as Manchester, the fastest growing city covered by the index (8.8%), as well as Portsmouth, Bristol and Glasgow.

Fig. 2 plots the range in the annual rate of growth between the fastest and slowest growing cities since 2010. Affordability pressures continue to impact growth rates in high value cities in southern England. While growth in Manchester has hit close to 9%, the supply/demand dynamics are not strong enough in regional cities outside southern England to support double digit rates of house price growth. Aberdeen continues to register price falls of 5.9%.

A new phase in city level housing cycles

The moderation in growth rates for high value cities reflects a shift into the next phase of the housing cycle in these cities. This is reflected in changes in the level of housing turnover over recent years. Fig. 3 plots the change in housing sales by city over the last 1 and 3 years.

Sales volumes flat to falling in unaffordable cities

Over the last 1 and 3 years housing turnover has been flat or falling in the highest value, least affordable cities such as London, Bristol, Oxford and Cambridge. This is a result of weaker investor demand, the impact of the Brexit vote and stretched affordability levels. In London overall sales volumes are down 7.5% since 2015. The falls in Aberdeen are down to the external shock of falling oil prices.

 

Source: Hometrack House Price Indices
Fig. 1 - Lowest annual growth in London since 2013
Source: Hometrack House Price Indices
Fig. 2 - Range of city level house price inflation
Source: Hometrack House Price Indices

 Sales up 40% in regional cities since 2013

In contrast, regional cites outside southern England are in the earlier stages of housing recovery and in Liverpool and Manchester sales volumes are up by over 40% over the last 3 years. Growth over 2016 was at a slower rate of less than 10%.

Sales volumes flat over 2017

Levels of housing turnover across UK cities are expected to remain broadly flat over 2017. There is some further upside for sales volume in regional cities such as Birmingham and Newcastle.

We expect sales volumes to fall by c.5% in the highest value cities over 2017, as the market and pricing levels start to adjust to price sensitive and affordability constrained demand. We expect slower growth in volumes in regional cities where there remains continued upside for market activity and house prices on more attractive affordability.

Fig. 3 - Change in turnover by city – 1 and 3 years
Fig. 3 - Change in turnover by city – 1 and 3 years
Source: HMLR, ROS, ONS
UK Cities House Price Index - February 2017
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