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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.
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
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.
With HPI moderating at 1.9%, it appears the slowdown in house price growth is an indication of a return to a more sustainable pace of price growth. However, a change in buyer mix from cash buyers to those with mortgages, plus wide variance in the recovery of house prices is sending mixed signals about current housing market activity.