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City level house price growth is running at 8.5% but growth in London has slowed rapidly in the last quarter to the lowest level of quarterly growth for 20 months. Eleven cities are registering higher growth than at the start of 2016 while 9 are slowing.
City house price growth outstrips UK
House price inflation across the UK Cities House Price Index is holding steady at 8.5% per annum, higher than the 5.7% growth recorded twelve months ago. Residential values across UK Cities are registering a higher rate of growth than the overall UK market where house price growth is running at 7.2% per annum. House price inflation continues to run more than three times faster than the growth in earnings as household confidence improves, earnings rise ahead of inflation and low mortgage rates make housing affordable for those with equity.
Growth rates rising across 11 cities
Eleven cities are registering higher rates of capital growth than in January 2016. The majority of these are large regional cities outside the south east of England – Liverpool, Manchester, Cardiff and Birmingham. These cities have attractive affordability on a price/earnings ratio measure with house prices rising off a low base. Annual house price growth currently ranges from 6.6% in Liverpool to 8.0% in Birmingham (Fig.1).
Growth slower across nine cities
Nine cities are registering house price growth lower than at the start of 2016 with the greatest slowdown led by Cambridge, Oxford, London and Aberdeen. Slower growth is a result of affordability, economic and market confidence factors.
London records slowest growth for 20 months
In the last quarter, London residential values have recorded their lowest growth rate since January 2015. Fears of a potential housing bubble, tightening credit terms and concerns over a mansion tax impacted demand for housing in London at this time.
In the last quarter, London residential values have increased by 0.9%, compared to an average of 3.0% over the last 3 years. The recent slowdown is yet to impact the annual rate of growth which is running at 10% but is expected to move towards 5% by the year end.
Supply/demand balance varies across cities
These patterns of relative house price growth are re-enforced by an analysis of property listings and sales data over the last 3 years. Sales rates are close to matching the flow of new property to the market, creating scarcity and supporting house price growth.
In contrast, London has the weakest market conditions with the new supply of homes coming to the market growing faster than sales which have fallen back in recent months on weaker demand. The ratio of sales to new supply is at its highest level for 3 years, re-enforcing the outlook for a continued slowdown in the rate of house price growth across London in the months ahead.
City house price growth slows to 6.4%. Manchester fastest growing city as London slips to 10th in growth rankings. New analysis of city turnover reveals large increases and falls. Overall city turnover expected to be flat in 2017.
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.