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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.
UK city house price inflation +2.4%
UK city house price inflation is running at +2.4%, half the average growth rate over the last 5 years and below the growth in average earnings (+3.8%).
House price growth ranges from +4.5% in Leicester and +4.3% in Manchester to -5.5% in Aberdeen. Prices are flat in London and falling -0.5% in Oxford (Fig. 1).
Owner occupier demand holding up
The latest data on mortgages for home purchase shows that demand from buyers looking to purchase their main home is holding up. Brexit uncertainty is one factor weighing on buyers’ minds, but it is market fundamentals, particularly the affordability of housing and cost of moving, that are of greater importance in dictating the strength of city-level housing markets.
This month we have updated our analysis on the discount to asking price that sellers need to accept in order to achieve a sale and the average time to sell (from first marketing date to the property going under offer). Fig.2 summarises the results at a city level.
Time to sell hits three year high across UK cities
House price growth has moderated over the last 3 years as sales volumes decline as a result of high price growth and stretched affordability. The average time to sell a property across UK cities has reached a 3 year high of 12 weeks, up from 8 weeks in 2016. Discounts to asking price have grown from 2.2% in 2016 to 3.8% today but there is a wide variation around these averages at a city level (Fig.2).
Market conditions strong across seven English cities
There are seven cities across England and Wales where underlying market conditions remain strong – with potential for further price inflation. Cardiff, Leeds, Nottingham, Birmingham, Leicester, Manchester and Sheffield all have an average time to sell of between 8 and 9 weeks and discounts to asking price of 2 to 3%. These cities have registered steady, above average house price growth over the last 1-2 years as demand for housing is sustained on the back of rising employment and attractive affordability.
Continued weakness in London and Aberdeen
In contrast, market conditions remain weak across London, Oxford and Aberdeen. Here the average time to sell is over 14 weeks and the discount from the asking price to achieve a sale is over 5% - double the level in cities with the strongest market conditions.
Aberdeen continues to feel the effects of the oil price collapse while Oxford is an extension of the London market and a city with a high ratio of house prices to average earnings.
Market conditions not deteriorating in London
In London, market conditions are weakest in inner London where the average discount to asking price is 7.6% compared to 4.7% in outer London. Discounts are in line with the last 12-18 months across inner London and have declined slightly in outer London over 2019. There is little prospect of an increase in house price inflation in London although greater realism on pricing is an important pre-requisite to increased sales activity.
Time to sell hits 10+ weeks across southern cities
Market conditions remain weak in cities across southern England where the time to sell is materially higher than three years ago (Fig. 3). Portsmouth, Southampton, Bournemouth and Bristol have all seen the time to sell increase from 6-7 weeks to 10-13 weeks as increased affordability reduces the pool of housing demand which pushes out sales periods.
Market metrics healthy in Scottish cities
The strongest market conditions remain in Scotland where a different system for marketing homes - with more information provided up front to would be buyers - makes for the fastest time to sell averaging 5-6 weeks in Glasgow and Edinburgh. With homes typically marketed as ‘offers over’ Glasgow and Edinburgh have ‘negative’ discounts to asking price as homes are selling for 6-7% above the asking price.
Near term prospects
This latest report shows a continued polarisation in housing market conditions across the country set by underlying market fundamentals. Brexit uncertainty has been a compounding factor for lower market activity in some areas. A General Election seems a growing possibility ahead of any BREXIT resolution. Once the political outlook becomes clearer we would expect a modest bounce-back in demand for 6-12 month period. However, a changed political outlook will have little immediate benefit for housing affordability as a constraint on market activity.
Market conditions are set to remain weak in southern cities until pricing levels adjust to what buyers are willing, or can afford, to pay. London is three years into a re-pricing process, and we expect sales volumes to slowly improve over 2020. However, as we highlight in this report, there are large parts of the country where housing affordability remains attractive and continued economic growth is supporting housing demand, leading to shorter sales periods and lower discounts to asking prices.Fig. 3 – Time to sell – weeks
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.