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Hometrack’s UK Cities Index records annual house price growth of 9.4% - faster than the 7.1% UK wide growth rate. City level house price inflation looks set to reach 10% by the year end. Large regional cities outside southern England are recording an acceleration in growth off a low base. Glasgow, Manchester and Liverpool are registering the highest rates of annual house price growth since 2007.
Large regional cities add impetus to price growth
Hometrack’s UK Cities Index, covering the most urbanised 5% of the UK with half the value of UK homes, is recording annual house price growth of 9.4% - faster than the 7.1% UK wide growth rate (fig.1.). As predicted earlier this year, city level house price inflation looks set to reach 10% by the year end.
Large regional cities outside southern England are recording an acceleration in growth off a low base. Glasgow, Manchester and Liverpool are registering the highest rates of annual house price growth since 2007. Improving consumer confidence and low mortgage rates are boosting demand in cities where the housing recovery is in its infancy.
Glasgow house prices currently average £110,000, less than half the £229,300 average price across all the 20 cities measured by the Hometrack UK Cities index. House prices in Glasgow stopped falling three years ago and have since risen by 13%. In the last 12 months they are up by 8.3%, which is the highest rate of annual growth across the city since August 2007.
Recovery 3 years old in Manchester and Liverpool
In a similar vein, Manchester house prices have been recovering since 2012 and average house prices have risen by 17% over this time to £141,200. In the last 12 months house prices across Manchester have grown by 7.0%, the highest rate of growth since July 2007.
Liverpool has registered the weakest house price performance of all the British cities covered by the index since the global financial crisis. House prices declined between 2007 and early 2013 and have since increased by just 10.5%. In the last 12 month year on year growth has risen to 5.1%, the highest since August 2007. Despite this modest recovery, the average price of £109,800 is still 13% lower than the 2007 peak.
House price recovery impacts activity
These city level indices show just how varied the housing recovery has been over the last six years. This varied pattern of growth impacts the loan to values for existing home owners and their capacity to borrow as well as investment decisions by developers and investors who are increasingly focused on finding better value in the regions outside London.
Central London goes ex-growth
The tentative recovery in large regional cities contrasts strongly with the rise of London house prices where average prices are up by 70% since 2009 (and by over 100% in the highest value markets). It is these high value markets that are now recording some of the weakest levels of house price growth (Kensington and Chelsea -2.6%, City of Westminster +1.3%) as tax and currency changes impact demand after a period of stellar price appreciation.
Modest slowdown in rate of growth still likely
Last month we reported early signs of a slowdown in the upward momentum in house prices which we still believe will materialise in the run up to the year end. The month on month change in the cities index in October was slightly lower than the last 4 months (0.9% in October versus an average of 1.2% over the last 4 months).
Outlook a balancing act
The outlook for the next 12 to 18 months will be a balance between how much the high growth London markets will slow and how much more momentum will come from cities where the housing recovery is still in its infancy. Our views on the outlook for 2016 will be covered in the next month’s index report.
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.