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City growth ranges from +7.6% in Manchester to -2.8% in Aberdeen. 3-month growth rate in London is increasing as sellers become more realistic on pricing, while discounts from asking prices in London are narrowing for first time in 2 years. Manchester has the lowest level of price discounting.
City house price growth running at 4.6%
UK city house price inflation was +4.6% in the 12 months to June 2018. Average prices increased by 4.4% over 2018H1, compared to 0.2% in 2017H2, as prices start to grow once again in London.
Manchester the fastest growing city
Manchester is registering the highest annual growth rate (7.4%), followed by Liverpool (7.2%), Birmingham (6.8%) and Leicester (6.5%).
Six cities registering real price falls
House prices are falling in real terms across six cities (growth below the 2.4% rate of consumer price inflation) - Southampton, Oxford, Belfast, London, Cambridge and Aberdeen (Table 2).
London City growth firms over 2018H1
London’s annual growth rate is +0.7%, but there has been an increase in the 3-month growth rate (Fig.2). Our more granular house price indices confirm this trend with a growing proportion of London postcodes registering month on month price gains. More postcodes are registering monthly price rises than falls.
Greater realism after 2-year re-pricing
The current stabilisation in London house price growth reflects greater realism on the part of sellers in the wake of a two-year re-pricing process. Since 2016 the discount from asking prices to sales prices has widened, reaching a high of 7% in inner London at the end of 2017 (Fig.3).
Discount from asking price narrows in London
Over the first half of 2018 the level of discounting to achieve a sale has started to narrow in inner London to 6.7%. Discounts have stabilised in outer London and the adjacent commuter areas. This is consistent with less downward pressure on prices.
Fall in London sales volumes at and end
While we expect the rate of price inflation to remain weak across London, greater realism on the part of sellers is positive news for transaction volumes which have fallen 20% since 2014.
Discount from asking prices varies across cities
The discount from asking to sale prices provides important insight into the relative strength of local housing markets. For example, Liverpool has the second fastest rate of growth as prices rise quickly off a low base. The level of discounting in the city has narrowed over the last two years but remains above average at 4.6%. Fig.4 shows the discount from asking prices across selected cities while Table 2 contains the latest data for each city.
Lowest discounts from asking price in Manchester
Manchester has the lowest level of discounting (2.2%) across all the cities in England and Wales. This remains on a downward trend and it is no surprise the city is currently registering the fastest growth in prices.
Growth rate in Birmingham moderates
House price inflation in Birmingham has moderated over the last year and the gap between asking and achieved prices has started to plateau, standing at 2.8%. We expect a continued moderation in the rate of house price inflation over the next 12 months.
Level of discounting grows in southern England
Cities across south eastern England have registered slower price growth as affordability pressures increase. Southampton, for example, is registering annual house price growth of just 2.1% while the level of discounting has increased from 2% to almost 4% since 2017Q3.
Prospects for 2018H2
We expect current trends to continue into the second half of 2018 as housing market forces continue to play out against the backdrop of rising employment and low mortgage rates. The main risks on the horizon are 1) the timing and scale of any increase in mortgage rates and 2) how the BREXIT negotiations unfold in the coming months and in the run up to March 2019.
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.
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.