UK annual house price growth continued to post multi-year record highs. According to the Nationwide House Price Index, the average UK house price was up by 6.5% year-on-year in November, the highest number since January 2015, as illustrated in our chart of the month. Yet concerns are mounting around the medium-term sustainability of such rapid growth. According to a recent report by Capital Economics, although the negative economic consequences of the pandemic have evaded the housing market on the back of extraordinary support measures put in place by the government, regulators and banks, house prices are expected to decline in 2021. Nationwide’s Chief Economist Robert Gardner also threw doubt into the sustainability of such strength by pointing out that labour market conditions had weakened in the three months to September with unemployment rate rising to 4.8%.
Chart of the month: Monthly UK house price, annual % change
Source: Nationwide House Price Index, Blend Network
Market Commentary
- Annual house price growth rose to 6.5% in November, the highest rate since January 2015. This comes after several month of surprisingly strong housing market performance – 5.8% YoY in October, 5% YoY in September and 3.7% YoY in August.
- Prices were also up by 0.9% in November compared to October. This took the year-to-date price increase during the first 11 months of the year to 3.2%, a fairly impressive performance given the magnitude of the pandemic and consequent economic slowdown. According to Nationwide’s Chief Economist Robert Gardner, October saw property transactions rise to 105,600, the highest level since 2016, while mortgage approvals for house purchase rose to their highest level since 2007 at c97,500.
- According to Capital Economics’ latest UK Housing Market Focus dated 27 November, while policy support in the form of stamp duty holiday has likely reduced and delayed the impact of the pandemic on UK house prices, it has not removed it altogether. Consequently, they expect the pandemic to take its toll in 2021 with a 5% dip in house prices next year. However, they expect the correction to be smaller than in previous recessions and leave prices slightly higher at the end of 2021 than they started 2020. Figure 1 from the Capital Economics report shows that at the end of the much less generous stamp duty holiday in 2008-9 there was a clear change in momentum in house prices, a phenomenon that they expect to see this time around as well.
Figure 1: House Prices When Stamp Duty Cuts Expire (% 3m/3m)
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