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UK House Price Index – May 2020

By Richard Donnell on 24 June 2020
  • Six weeks on from the English market reopening and sales agreed are 4% higher than pre-COVID levels - despite prolonged market closures in Scotland, Wales and N. Ireland
  • Rebound in activity expected to subside in coming weeks as demand fell back 11% off a high base in last two weeks, but reopening of Welsh and Scottish markets will support near term demand
  • Elevated levels of demand and less available supply of homes for sale, which are 15% lower than a year ago, is creating an upward pressure on house prices - for example, the asking price of homes sold in June are up 7%** 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

UK house price growth +2.4% year on year

UK house price growth is 2.4% on the year, up from 1.4% at the start of 2020 as the post-election rebound in market activity pushed house price inflation higher.

The rate of growth in the 20-city index has moderated from 2.4% in April to 2.1% in May. House price growth over the last 12 months has been strongest in Nottingham (4.3%), followed by Manchester (3.9%). Prices are falling in Oxford (-0.6%) and Aberdeen (-2%).

Three month growth rate stalls in May

The 3 month growth rate for the 20 city index and selected cities is shown in Figure 1 - it shows the upward momentum in price inflation after December 2019 and the slowdown in the 3 months to May, largely a result of lower volumes of pricing evidence.

Zoopla’s house price indices are collated using over 100,000 data points including sales, mortgage valuations and listings data making it one of the most robust indices in the market.

Annual growth rate to remain at 2-3% in Q3 2020

The bulk of new pricing evidence continues to come from sales agreed before the lockdown.

Data on pricing for new sales agreed in the last 4 weeks is starting to feed through and points to a resumption in the upward pressure in house prices seen at the start of the year.

We expect the headline rate of house price growth to remain in the 2-3% range over the next quarter. We do not see any downward pressure on prices materialising until much later in 2020.

Asking prices for sold homes 7% higher than last year

One indicator is the average asking price for homes marked as sold on Zoopla in the first 2 weeks of June which are 7% higher than a year ago (on a non=mix-adjusted basis) - see Figure 2.

This is a return to levels seen over the first quarter of 2020. We are not saying the growth rate in our UK house price growth is going to rise over 5% in the near term, but the general direction of the two series track each other over time supporting our view that house price growth will hold up in the near term.

City-level summary, May 2020
Zoopla House Price Index, powered by Hometrack

Housing demand starts to fall off a high base

New sales agreed lag increased demand which was rising over the lockdown and spiked higher as the English market reopened.

Rising demand also leads new supply as households searching for homes will then list their homes for sale - Figure 3.

Sales agreed have now rebounded to pre COVID levels as have the number of new homes being listed for sale. Demand for housing remains 46% above the levels of early March but it has started to weaken over the last 2 weeks - falling 8% since the 11 June.

This is not surprising given the strength of the boost in demand. While the Welsh and Northern Ireland markets have just reopened, demand has already rebounded close to English levels in anticipation of the market opening.

The market in Scotland reopens later in June but demand is already back in line with early March. Levels of agreed sales remain suppressed in these countries and their cities (Fig 4), although we expect them to rebound, mirroring England.

Strongest rebound in sales in northern cities

New sales agreed, compared to February this year, have recovered strongly in English cities - Figure 4. The rebound in sales has been led by cities in northern England - Leeds, Sheffield and Manchester.

In English cities where the recovery in sales has been weaker, including Bristol, Newcastle and Cambridge, this may not be solely due to demand-side factors, but the available supply of homes for sale.

Figure 5 shows the level of available supply in these cities is significantly lower than it was a year ago. In fact the average number of homes for sale across the 20 key cities is down 15% year on year.

While the flow of new supply has returned to pre COVID levels, overall stock levels per agent are lower because of no new supply coming to the market over the lockdown period.

Constrained supply is another reason why we believe house prices will rise in the short-term but it will be a concern for agents looking to rebuild sales pipelines. The message for would-be sellers is do not delay and list now while market conditions are stronger.

Economic impacts of COVID to hit home in 2020

H2 While the near-term outlook is positive, we expect housing demand to weaken over the course of the summer as the economic impact of COVID starts to materialise, with widespread projections for increased levels of unemployment.

Weaker demand will be compounded by lower availability of higher loan to value (LTV) mortgages (90% and above) which will impact first-time buyers.

In 2019, a fifth of all homebuyers purchased a home with a deposit of 10% or less, so a decrease in the availability of 90%+ LTV mortgages means this cohort of would-be buyers may not be able to enter the market, effectively reducing demand.

Government and central bank support will continue to play an important role in how the economy fares with a knock-on impact for the strength of consumer sentiment. Retail sales, for example, rebounded more than many expected.

While almost a fifth of mortgage holders have taken payment holidays, borrowers are able to take these up until the end of October 2020 meaning support extending for the rest of the mortgaged sector up until April 2021.

Further support and innovation to support the economy and the housing market cannot be ruled out in these unprecedented times which will limit the downside, albeit but not completely.

Fig. 1: 3-month growth slows after spiking upwards
Source: Zoopla House Price Indices, powered by Hometrack. 2019 is 12 month growth to November 2019
Fig. 2: Asking prices for 'sold' homes growing 7% year-on-year
Source: Zoopla Research (data to 16 June)
Fig. 3: Demand starts to fall back off a high base
Fig. 3: Demand starts to fall back off a high base
Source: Zoopla Research (7-day rolling average, data to 18 June)
UK House Price Index – May 2020
By Richard Donnell
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