UK house price growth slows
Making sense of the latest trends in property and economics from around the globe.
4 minutes to read
House prices
Annual growth in UK house prices slowed to 12.1% in April, down from 14.3% a month earlier, according to Nationwide data out this morning. The 0.3% monthly gain was the smallest since September.
“The wave of strong house price growth that has been building for two years appears to be breaking," says Knight Frank Head of UK Residential Research Tom Bill.
Indeed, the cost-of-living squeeze and rising mortgage rates will drag on house prices over the months ahead, though it will take time. Nearly four in ten UK consumers are in the process of moving or considering a move, according to a Nationwide survey. That metric stands at nearly 50% in London, suggesting a level of buoyancy that will stretch for a few more months.
The race for space is subsiding. The proportion of those citing a desire to get away from the hustle and bustle of urban life or gain access to a garden / more outside space has declined substantially – to 12% and 15% respectively, down from 25% and 28% in April 2021.
Annual house price growth will slow to 5% by the end of the year before dropping to 1% next year, according to our forecasts.
Interest rates
A more bearish view comes from respected forecaster Capital Economics, who while predicting house price growth this year, expect to see a 3% fall next year and a 1.8% fall in 2024, according to its revised forecasts out yesterday.
The rising cost of finance underpins its more bearish outlook. The company believes the Bank of England's base rate will climb to 3% early next year, with the average mortgage rate doubling to 3.6%. That would be the sharpest rise since 1990.
Our forecasts assume that the base rate will peak at 2% in 2023. Market pricing suggests this is beginning to look optimistic, but to be fair there is little consensus among forecasters over how aggressive the Bank of England will be in reining in inflation. Markets broadly agree that a hike to 1% is on the cards at the next meeting on May 5th, but beyond that point views begin to diverge. Oxford Economics, for example, believes a hike in May would mark the end - or close to the end - of this year's rate hikes.
The minutes of the May 5th meeting will provide clues. The Monetary Policy Committee was much more dovish at the previous meeting, see this March note, suggesting the cost-of-living squeeze will cut spending power enough to combat rising prices without the need for aggressive rate hikes. It's worth noting that the public's expectations for inflation fell in March for the first time since October, according to a closely watched survey.
Retail sales
The latest retail sales figures from the CBI will reinforce the BoE's dovish stance. Sales in April were poor for the time of year and volumes contracted rapidly, the first fall for 13 months.
This survey, based on the responses of 108 companies including 51 retailers, suggests that consumer spending is shifting back towards services and rising prices are impacting households’ spending power.
Almost six out of 10 British companies plan to raise prices in the coming year, according to a separate survey from Lloyds. That's the highest reading since the company began asking the question in January 2018. Businesses say they are delivering pay rises to staff, though most are well below the rate of inflation. Some 27% of firms plan to raise pay by at least 3%, rising to 42% of larger companies.
The view from America
My colleague Will Matthews notes a shift in money markets underway in the US. Pricing suggests the US Federal Reserve will increase rates by 50bps at each of its next three meetings, culminating in a 2.7% interest rate by year end.
The economy is showing signs of strain. Real GDP fell at an annual rate of 1.4% in the first quarter, according to data published yesterday. Consumer spending rose 0.7% and continues to be the bright spot but could well go into reverse during the months ahead. Real disposable personal income decreased 2.0%, marking the fourth consecutive contraction.
The housing market there continues to defy gravity. Prices in 20 US cities soared at an annual rate of 20.2% in February, up from the 18.9% annual increase in January, according to the S&P CoreLogic Case-Shiller index.
In other news...
Judith Fischer on the growth of 'q-commerce' in Europe.
Elsewhere - Airbnb tells employees they can work remotely "forever" (NYT), the world’s biggest property investors buy into ‘science superpower’ UK (FT), there are fewer empty shops (Times), expat bankers fleeing Hong Kong see no easy escape to Singapore (Bloomberg), and finally, what’s causing the global rental squeeze? (FT)