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The annual rate of house price inflation across the 20 cities has started to slow after 12 successive months of rising house price inflation A marked slowdown in the rate of growth over the last three months in London is behind the shift in momentum. However, house price growth in large regional cities outside southern England, continues to hold steady at 7-8% per annum with no sign of an imminent slowdown. Aberdeen is also registering a slower rate of price falls compared to recent months.
Headline UK city house price inflation was 9.5% in July, down from 9.9% in June. Bristol remains the fastest growing city (14%), followed by London (11.7%). House price inflation in Aberdeen is falling at a slower rate of -8% with prices up 2% in the last quarter, a sign the market may have now adjusted to the impact of the fall in the oil price on demand.
Focusing on growth in the last quarter (fig.1), the highest rate of growth have been registered in lower value, higher yielding cities where prices are rising off a lower base – Glasgow (5.2%), Liverpool (4.4%), Manchester and Nottingham (3.4%).
London and Cambridge losing momentum
London has registered a marked slowdown in house price growth over the last three months (fig.2). Average growth in the last quarter was 2.1%, the lowest rate for 17 months as weaker investor demand, affordability pressures and Brexit uncertainty impact demand at the same time as supply has risen. This is still an annualised rate of 8%+ but the signs are growth will slow further over the coming months. Cambridge posted a 1% price fall over the last quarter with prices more sensitive to weaker demand although the annual rate of growth is still running at 7.1%.
Large, regional cities show no sign of a slowdown
Outside southern England, large regional cities such as Leeds, Manchester, Birmingham and Cardiff are registering annual growth rates of 7-8% per annum. House price growth in the last quarter suggests no imminent slowdown with house price inflation stable for now.
What outlook for the rest of the year?
The latest official data from HMRC on housing sales to July show seasonally adjusted volumes down 8% year on year but data is limited as to how this plays out across cities. Update analysis of recent listings data suggests sales volumes are continuing to hold up outside London and southern England. The greatest divergence in new supply and sales remains in London, consistent with slower growth recorded by the Hometrack index.
In the absence of adverse economic trends impacting employment and mortgage rates, the near term outlook is for a continued slowdown in London towards mid-single digit growth and stable growth rates in regional cities as households’ price record low mortgage rates into city house price where affordability remains attractive.
We continue to believe that turnover will register the brunt of the slowdown in London. In the face of lower sales volumes agents will look to re-price stock in line with what buyers are prepared, and can afford, to pay. Past experience shows that this process can run for as long as 6 months and relies, in part, in how quickly sellers are willing to adjust to what buyers are prepared to pay.Fig. 2 – London City – annual and monthly growth
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.
UK City HPI is running at 2.3%, with Liverpool and Edinburgh seeing growth of +6% and Aberdeen -5%. Looking at average house price growth versus growth in average earnings, we can see that affordability levels are starting to improve. Twelve cities are registering price growth that is lower than the growth in average earnings.