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UK City house price is moderating at +3.2%. Two cities are registering annual price falls, while five cities are tracking house price inflation at more than twice the rate of earnings growth. In London, the extent of monthly price falls has moderated, and 56% of postcodes are registering month on month price gains.
City house price inflation +3.2%
The rate of house price growth across UK cities continues to moderate. The 20-city index is registering an annual rate of house price inflation of 3.2%, down from 3.8% a year ago.
Liverpool fastest growing city
Liverpool is the fastest growing city with annual inflation at 6.9% followed by Birmingham (6.5%) and Leicester (6.4%). There are five cities where house price inflation is running at over 6%, more than twice the rate of earnings growth (2.7%), as prices rise off a low base and affordability remains attractive.
Annual price falls in two cities
House prices are falling on an annual basis in two cities, Aberdeen (-4.4%), London (-0.4%). London has attracted significant focus as a market experiencing the greatest downward pressure on house prices. The annual rate of growth in London has been negative for the last 7 months, largely a result of quarterly price falls in the six months to January 2018. Since then the quarterly rate of growth has been positive and this has supported the annual rate of growth (Fig.2).
Annual price falls across 54% of London postcodes
Back in February we reported that annual house price inflation was negative across 45% of London postcodes. Today this figure is higher at 54%, having peaked at 58% in June 2018 (Fig. 3). Most areas are registering annual price falls of between 0% and -5%.
Extent of monthly price falls has moderated
Measuring the coverage of markets experiencing annual price falls masks the trends over the most recent months. Fig. 3 plots the proportion of postcodes registering month on month price falls, which leads the annual data. Today, 44% of postcodes across London City are registering month on month price falls compared to 70% in December 2017.
This means 56% of postcodes are registering month on month price gains, implying that the proportion of markets registering annual price falls will slow further over the rest of the year.
London prices rising in outer and commuter areas
London’s housing market is large and diverse. Our analysis of price changes by local authority area finds that price falls are concentrated in inner areas of London where affordability levels are most stretched and the gap between asking and sales prices is largest.
Modest price increases continue to be registered in outer areas of London and the surrounding commuter zones where average prices are between £300,000 and £450,000 and affordability is less stretched than in central areas.
Two speed housing market to continue
The re-pricing process in London continues to unfold at differing speeds and against the backdrop of lower turnover. Demand remains weak and as a result we expect prices in London to continue to drift lower over 2019 as prices re-align to what buyers are prepared to pay. House price growth is set to remain above average in the most affordable regional cities.
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.
With HPI moderating at 1.9%, it appears the slowdown in house price growth is an indication of a return to a more sustainable pace of price growth. However, a change in buyer mix from cash buyers to those with mortgages, plus wide variance in the recovery of house prices is sending mixed signals about current housing market activity.
UK City HPI is running at 2.3%, with Liverpool and Edinburgh seeing growth of +6% and Aberdeen -5%. Looking at average house price growth versus growth in average earnings, we can see that affordability levels are starting to improve. Twelve cities are registering price growth that is lower than the growth in average earnings.