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UK house prices increased by 7.9% in the 12 months to January 2015, down from 8.1% from December 2014. The underlying 3 month annualised rate of growth stands at 4.6%. For the last five months the weakest performing cities have been registering positive growth on a rising trend. The impetus for national house price growth is emerging from the lower growth cities where house prices have been recovering for a limited period.
At a city level the annual rate of growth ranges from 4.1% in Glasgow to 16.3% in Aberdeen. Figure 1 shows the spread in year on year growth between the highest and lowest growth cities since 2002. Belfast was the city registering 60% year on year growth in mid 2007 where prices today are 50% below their peak, 2007, levels.
For the last five months the weakest performing cities have been registering positive growth on a rising trend. The impetus for national house price growth is emerging from the lower growth cities where house prices have been recovering for a limited period. We expect the gap between high and low growth cities to narrow further in the months ahead as house price inflation slows in the higher growth markets.
The profile of the recent recovery in house prices varies across markets. There are two distinct groups of cities shown in figure 2. First are those where house prices bottomed out in 2008/9 and have been recovering for 5-6 years. Second are cities where prices stopped falling as late as 2013 and the recovery has been shorter, running for the last 2-3 years.
Figure 2 shows the level of house price inflation from these recent lows with average prices in London up 55% compared to just 6% in Glasgow.
The length of time a city has seen house prices recover is not correlated to the level of house price growth. Fourteen cities saw house prices trough in 2008/9 with the strongest gains in southern England. The lowest growth has been seen in cities such as Manchester and Birmingham where the performance of house prices is more reliant on the local economy and growth in incomes and employment.
The high growth, high value cities have now largely priced in lower mortgage rates and affordability pressures are set to limit the rate of house price inflation. London (13.6), Bristol (10.8%), Oxford (8.6%) and Cambridge (5.3%) are all continuing to register slower house price inflation.
The overall outlook is for continued house price growth but at a lower rate. There are no signs of any price falls at a city level. Demand continues to be stimulated by record low mortgage rates, falling unemployment and rising earnings. A lack of housing for sale will continue to keep an upward pressure on house prices. We expect the cities that have under-performed to continue to provide the impetus for house price growth in 2015.
House price inflation varies between markets and whether developing, investing or lending into local housing markets these local differentials are important.
What the analysis does show is the dangers of focusing on the UK rate of house price inflation and even regional growth rates. House price inflation varies between markets and whether developing, investing or lending into local housing markets these local differentials are important. For example, some house price indices put Scottish house price inflation in double digits while city level price inflation is much lower. Having an accurate view on house price growth is important for better informed decision making.
UK city house price growth in February 2020 was +1.6%, higher than the +1.2% a year ago. That said, in recent weeks coronavirus has had a rapid impact on housing demand, which is 40% lower in the last week. Transaction volumes are set to decline by an estimated 60% in the next quarter with a further fall in sales volumes over Q3 2020.
This month's Cities Index is the second in a row to record a 3.9% increase year-on-year. This is taking average prices up to a nearly 3-year high. Prices have now also recovered across all English cities to pre-recession 2007 levels. Supply is still flat and outpaced by demand, at 2.6%.
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.