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There are signs that the underlying rate of house price growth has peaked, as thirteen of the twenty cities tracked by the Hometrack Cities Index have registered a slower rate of growth post-election.
City level house price growth tentative slowdown
City level house price inflation is running at 8.4% per annum up from 6.6% in May as a post-election surge in demand continues to put upward pressure on house prices. There are signs that the underlying pace of growth may have peaked. The three month rate of growth expressed on an annualised basis appears to have reached a peak (fig.1).
Table 1- UK 20 city index summary, September 2015
Source: Hometrack House Price Indices
The year on year rate of house price growth masks more volatility in the underlying rate of growth. There is a clear cyclical movement in house prices and since March 2015 the 3 month rate of growth, expressed on an annualised basis has risen to over 16%, slipping back slightly in September to 15%. This will in part be due to seasonal factors with mortgage approvals for home purchase increasing strongly over June and July while falling back 15% in August. The outlook for housing demand remains positive but the question is whether the post-election surge can be sustained. We expect demand to moderate in the run up to the year end with a modest slowdown in the pace of monthly house price growth compared to the last four months.
Signs of slower growth across 13 cities
It is dangerous to read too much into one month’s headline results data but at a city level the average rate of in the last three months has slowed across thirteen of the twenty cities covered by the index.
Discount from asking to achieved prices
The discount between asking and achieved prices averages 3% (fig.2). Newcastle and Liverpool have the largest discount between asking and achieved prices averaging 6% against below average house price inflation of 4%. Cambridge is registering a small premium of 2% as strong demand and scarce supply are sustaining the highest city level price growth.
Wide variation in performance in last 8 years
While city level house price growth is running ahead of earnings, average house prices are still below the levels recorded eight years ago in nine cities. The majority of cities have average prices between +18% in Bristol and -14% in Liverpool. Belfast prices still remain almost half the level seen in 2007 while those in London are 43% higher highlighting there is no such thing as a single UK housing market.
City level house price inflation is running at 6.9% while growth in London (6.4%) is running at its lowest level for 4 years and set to slow further. House prices in many regional cities where the recovery has been muted have material upside so long as the economy continues to grow and mortgage rates remain low.
House price inflation in Manchester hits 12 year high. Growth in regional cities continues to overhaul London which dropped to 7th in the city house price growth rankings for 2016. Bristol is still the fastest growing city +9.6% but could be overtaken by Manchester in Q1.
City level house price growth is running at 7.7%, in line with our projections this time last year. We expect city house price growth to slow to 4% in 2017 with weaker growth in London and other southern cities offset by sustained growth in large regional cities.
City level house price growth is holding steady at 8.4%. This month we reveal an updated view on city level affordability. This finds that after an 86% uplift in house prices since 2009, the price to earnings ratio in London now sits above 14x with Oxford and Cambridge close behind. Other cities are at or below their long run average. Read the Report to find out what this means for city level house price inflation.