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City level house price growth accelerating: Annual house price inflation across UK Cities is rising once again on the back of low mortgage rates, tight supply and a 32% increase in transactions volumes since April 2015.
City level house price growth accelerating
City level house price inflation is running at 8.5%, up from 7.2% in April (figure 1). House prices are up by 4.3% in the last 3 months – the highest quarterly growth rate for 11 years.
All cities with the exception of Aberdeen are registering house growth ahead of growth in average earnings (currently 2.4%). The highest year on year growth is 10.9% in Cambridge followed by Oxford, London and Bristol. The lowest growth rate is being registered in Aberdeen (-0.7%) where the weakness in the oil price is impacting the local economy and demand for housing. Other cities with below average house price growth are Newcastle, Liverpool and Sheffield where annual growth is running between 2.5% and 4.5%.
Table 1 - UK 20 city index summary, July 2015
Source: Hometrack House Price Indices
There is room for further catch-up in house prices. Nine of the twenty cities still have average prices that are lower than 2007 levels although this gap is narrowing rapidly. The relative performance of house prices since 2007 remains wide and reflects different economic and demand side drivers of house prices.
Average prices in London are 40% higher than in 2007 and 14% higher in Bristol. Cities such as Edinburgh and Glasgow have registered a resurgence in growth more recently post the Scottish referendum although average prices remain 2% and 11% below their peak.
City level house prices register the highest quarterly growth for the last 11 years
More growth to come in near term
Low mortgage rates, economic growth and rising earnings will continue to stimulate demand and put an upward push on house prices across most cities. As an international city, London is out on its own setting new highs for prices and (un)affordability. How long this can be sustained is down to the prospects for the different segments of demand, specifically international buyers, domestic investors and domestic home owners. Overall we expect city level house price inflation to remain on course to end the year at 10% year on year.Figure 2 - House price inflation by city (%yoy)
The surge in demand for property is expected to delay house price falls, pushing them towards the end of 2020, according to this month’s UK House Price Index by Zoopla - the UK’s leading property resource
Two weeks on from the Government reopening the property market and pent-up demand has exceeded levels recorded pre-lockdown at the start of March.
Some 373,000 property transactions, with a total value of £82bn, are on hold after the Government effectively suspended the housing market as part of its measures to control the coronavirus outbreak, according to the latest UK Cities House Price Index.
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.