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The 20-city index is registering house price inflation of 2.9%. Growth ranges from +6% in Leicester to -1.6% in Aberdeen. Comparison of time to sell and discounts to asking price indicates the strength of city housing markets, with twelve cities having relatively strong market fundamentals.
London a drag on 20 city index headline growth
UK city house prices rose 2.9% over the 12 months to January 2019. Prices are rising fastest in Leicester (6.0%) followed by Belfast (5.8%) and Manchester (5.4%). Prices continue to fall in Aberdeen (-1.6%) where average values are £34,000 lower than mid-2015 at the time of the collapse in the oil price. London house price inflation is virtually flat at +0.2%.
City price inflation have varied widely
The annual rate of growth continues to moderate. Thirteen cities are registering weaker growth than a year ago as a result of affordability pressures and increased uncertainty. The sharpest slowdown in the rate of growth has been registered in Edinburgh, Bournemouth, Portsmouth and Bristol (Fig.1). Bristol, for example, is recording annual house price growth of 1.8%, the lowest rate for over 5 years (September 2012) as affordability pressures impact demand. It is a similar story in Portsmouth, Bournemouth and other cities across southern England.
Other measures reveal relative market strength
Other housing metrics can demonstrate the relative strength of city housing markets. Fig. 2 sets out the average time it takes to sell a property in weeks and the level of discount to achieve a sale for each city.
Aberdeen and inner London are weakest markets
The weakest housing markets have the longest sales periods and the largest discounts – currently Aberdeen and Inner London where discounts to asking price average 7% and the time to sell is 16 weeks. The closer the top right of Fig.2, the weaker the outlook for house price growth and the greater the likelihood of lower sales as vendors hold off from selling.
Nottingham has strongest fundamentals
Nottingham has the strongest market indicators with an average asking price discount of just 2% and less than 8 weeks to achieve a sale. House price growth is holding steady at 4.6%.
Strong underlying market conditions in 12 cities
Our analysis reveals that market conditions are strong across twelve cities. All these are located outside the south of England. While increased uncertainty has resulted in a slower rate of house price growth, there remains further potential for price growth.
Achieved prices higher than asking prices in 2 cities
Edinburgh and Glasgow have the fastest time to sell a property and achieved prices are on average 6% to 8% higher than the asking price. Homes in Scotland are typically marketed as ‘offers over’.
Asking price discounts narrow in regional cities
Fig.3 plots the trend in asking price discounts over time comparing Nottingham, Birmingham, Manchester and London. Discounts continue to narrow in large regional cities despite a slowdown in the annual rate of price inflation. In contrast, discounts continue to widen in London. Discounts of 5-6% indicate price falls.
Outlook for rest of 2019Q1
The latest data for housing sales shows transaction volumes holding up in line with the 5 years average with first time buyers the largest buyer group in 2018. Uncertainty has impacted the headline rate of growth, but demand for housing is holding up better than many had expected.
We expect city level house price growth to moderate further in the very near term. Underlying market conditions remain strong across many cities and there is potential for further price inflation once the outlook becomes clearer.Fig. 3 – Discount from asking price – selected cities
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.