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Average house price growth for the 20 cities covered by the index is running at 13.2% in the 12 months to November 2014. This is higher than the rate of growth for average UK house prices (8.9%). Momentum in house price growth is slowing. 16 of the 20 cities recorded a slower rate of growth in the last 3 months compared to the average over the last 12 months.
The most pronounced slowdown has been seen in Cambridge, Aberdeen with house prices down on average by -0.2% and -0.4% respectively in the last quarter – see figure 1.
Prices in London are still rising month on month but at a third of the level of growth recorded over the last 12 months. At a localised level there are parts of London where prices have fallen in the last three months as prices re-adjust off a high base.
The major regional cities are likely to see more resilience in the rate of house price growth where the rate of growth is below average and prices are rising off a low base. Five cities recorded higher price growth than London in the last three months - Edinburgh, Glasgow, Southampton, Bristol and Birmingham.
In Scotland there appears to be a post-referendum acceleration in house price growth in Edinburgh and Glasgow. However, the weakness in the oil price is set to impact the Aberdeen economy and housing market where growth has been weakening.
The prospects for the housing market depend upon how the improvements in the economy, on jobs and earnings translate into demand for housing. The transition from economic growth to house price growth takes time to work through the system.
Much of the growth in housing demand in the last 2 years has come from first time buyers, investors and cash buyers. Demand from existing mortgaged home owners has remained subdued. The impacts of greater mortgage regulation are yet to fully play out. London’s strong recovery was ahead of greater mortgage regulation.
At a city level is the strength of the local economy and the profile of employment that will dictate the relative performance of house prices.
Looking ahead we expect the rate of house price growth to slow from the current 8.9% to 2% by the end of 2015. The underlying rate of growth is already running at 6% on an annualised basis. A pronounced slowdown in the London market is expected to act as a drag on the headline rate of growth in 2015.
House price growth in cities away from the influence of London is likely to hold up better as affordability levels are less stretched and prices rising off a lower base.
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.