We are in the middle of an historic period in the UK residential housing market, a period of rare stability that has not seen prices change by more than 1% in any three-month period since November 2014.
You’d have to go back more than 35 years to find a market that was so stable, over such a protracted period. The market has become ‘becalmed’ over the last two years.
During the autumn of 2014, the market moved into a fragile state of equilibrium predicated on the underlying market conditions of high demand/low supply and low borrowing costs, but restrained by low transaction levels, low confidence and an uncertain outlook. It’s been that way ever since, but it’s a precarious balance.
I believe this new pattern in house price movements is with us for the foreseeable future – at least up until Article 50 is triggered in any case.
I am confident we won’t see any material increase in volumes in 2017. In fact, I believe we’ll see a slight decrease as consumer confidence continues to slide and mortgages get more expensive and slightly more difficult to come by. I believe transaction numbers with a value higher than £40k will fall to around 1.2m next year with a significant dip in the summer months.
Although the market continues to be uncharacteristically stable, I believe there is still a reluctance to commit. A reluctance to give up great fixed rates by moving house. And for those living more than 100 miles from London, a reluctance to sell in a market that has dramatically failed to live up to its potential over the past three years. But I do see the new homes share of the market moving slightly above its long run average and maybe see spec sales even exceed 11% of the total at around 135k.
I believe the London market will continue to slow its rate of growth in 2017 and while I think it’s unlikely that there will be negative growth in the Capital in the year, it will feel like deflation for optimistic sellers as the ambition is cruelly dashed from their over-enthusiastic asking prices conceived on the dramatic up curve. I predict neutral growth in this critical market.
For the overall UK average index value, while I believe there will still be inflation in the market in 2017, the rate will continue to slow and I anticipate the annualised increase decreasing to around 3.5% by the half year.
The market in the second half is, as ever, much tougher to call. But, as things stand, it’s hard to see any picture other than a further slowing of inflation and I anticipate the final UK average price (according to the Nationwide index) increasing by between 1% and 2% for the year.