For those of us who follow house prices in the UK, the start of a new month signals one thing: the publication of the latest institutional property market indices. While these monthly studies have their critics, they do provide a hugely useful snapshot of the health of the sector. Nationwide was first out of the blocks with its index for October but, unusually, it garnered relatively little media attention, with most newspapers seeming to be more preoccupied with the impact on house prices of the Bank of England Monetary Policy Committee (MPC) raising the base rate. In this short Nethouseprices article, we look at the contents of the Nationwide report and evaluate the industry response.
Nationwide index for October
The key findings of the index were as follows:
1. The cost of the average home in the UK rose by 0.2 per cent on a monthly basis, down from 0.4 per cent in September.
2. Prices increased by 2.5 per cent in the 12 months to October, up from a revised 2.3 per cent in September.
3. A house or apartment now costs an average of £211,085. This compares with £210,801 the previous month.
As ever, these statistics come with an important caveat - they are based on Nationwide's own mortgage lending data and these won't necessarily reflect the wider market. The numbers are also subject to revision. September's figures, for instance, were revised to correct a minor weighting error.
Reaction
The expert reaction to the October index is best described as "guarded." In general terms, analysts welcomed the evidence of growth in the cost of residential property. However, several of them expressed the view that there are a number of emerging challenges, which could conceivably weigh down the market.
Nationwide's Chief Economist, Robert Gardner, for example, recognised the uptick in prices and attributed them to:
- low mortgage rates
- the buoyant jobs market
- the general economy being healthier than had been predicted
- the shortage of homes for sale.
Mr Gardner sounded a note of caution, though, stressing that general inflation is outpacing wage growth, putting pressure on consumer finances. This could subdue house prices in the UK. This being said, he doesn't envisage the rise in the base interest rate making too significant a difference to the market. Certainly, he conceded, the increase will not be universally welcome. The reality is, though, that the hike is just 0.25 per cent and will barely impact mortgage repayments.
Interestingly, his comments follow a statement by Moody's - the international credit rating agency - that it didn't believe that a change in the base rate would significantly alter the housing landscape in Britain. For further reading on the statement from Moody's, please see: https://www.theguardian.com/business/2017/oct/31/uk-interest-rate-rise-house-prices-moodys-property-market-brexit.
In his briefing, Mr Gardner also highlighted the possible dampening effect of Brexit on the private rental sector. We will explore this aspect of the Nationwide index in a future Nethouseprices column.
Elsewhere, when asked for his views on the October index, Howard Archer of the EY Item Club said that the findings were in keeping with projections of modest growth for the balance of this year and rises of 2-3 per cent in 2018. The environment would be challenging, owing to falling real wages and what he termed "fragile" consumer confidence. Mr Archer was a little more ambivalent about the interest rate adjustment, saying that its psychological effect might be greater than is generally expected. In other words, the first rise in over a decade, however small it might be, could disproportionately alter consumer sentiment.
This theme was taken up by Jonathan Samuels of Octane Capital who said that this could be a "symbolic" moment, which might induce caution among house-hunters, especially against the prevailing backdrop of a rising cost of living.
One of the experts we frequently cite here at Nethouseprices, Samuel Tombs of Pantheon Macroeconomics, was equally downbeat, firstly emphasising that the Nationwide study is collated using its own mortgage approvals as a point of reference. As such, they need to be evaluated with a degree of caution. Secondly, he believes that such factors as the rise in interest rates do have the potential to weaken house price growth. He concludes that, to his mind, it would be a mistake to assume that the worst was over and that prices were back on an upward trajectory.
This somewhat gloomy assessment was shared by Alex Gosling of HouseSimple, who commented that the market was flat and that it seemed that it would limp towards the end of this year, with the public holding off on a decision about house-buying until after the holidays. A spark is needed.
As dispiriting as some of these opinions might be, they are not shared by every commentator. Property expert, Russell Quirk, by way of example, seemed positively bullish about the Nationwide index. He said the figures were proof that the market was defying the naysayers and shrugging off the EU referendum and a "shambolic" general election. In his view, a rising population and the ongoing imbalance between housing supply and demand will continue to support prices, a context in which the rise in interest rates is unlikely to make a great deal of difference.
Nethouseprices view
We are inclined to take the middle road on this month's Nationwide release. The fact is that house prices in the UK continue to rise at a time when many observers predicted a decline. The housing shortage isn't going to be resolved imminently so, unless there is a major unexpected economic shock, it's hard to see anything other than steady, if unspectacular, price rises. True, there is an element of the unknown surrounding the rise in interest rates, but the MPC is managing the changes carefully in order to avoid disruption and, as we have seen, it won't hesitate to make a further cut to the base rate if this seems necessary. We will, of course, look at the other major indices as they are published to see if they are producing the same narrative as Nationwide.
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