A significant downward surprise as the Halifax reported house prices slumped 1.4% month-on-month in November. This took the annual rate of increase down to just 0.3% in the three months to November, which was the weakest since the three months to December 2012.
The Halifax house price measure has shown markedly more volatile monthly house price movements in recent months than other measures. It is also notable that the Halifax is now reporting markedly lower annual house price inflation than most other measures – although virtually all of them are soft. The Nationwide reported house prices rose 0.3% in November, giving an annual increase of 1.9%.
Housing market activity is relatively lacklustre – although there are varying performances across regions with the overall national picture dragged down by the poor performance in London and parts of the South East.
We expect overall UK house price gains over 2019 to be limited to around 2%. If the UK manages to leave the EU with a “deal”, reduced uncertainty should provide some support the housing market. This could help housing market activity gradually improve as 2019 progresses supported by a likely gradual pick-up in consumers’ real income growth.
If the UK leaves the EU in March without an approved Brexit “deal”, house prices will likely fall modestly in 2019.
Housing market activity is currently being constrained by still limited consumer purchasing power, fragile consumer confidence and appreciable caution over engaging in major transactions. Caution over making house purchases may well currently be magnified by heightened uncertainties over Brexit.
Potential house buyers may also be concerned that they are likely to face further interest rate hikes over the medium term following August’s hike. Furthermore, house prices are relatively expensive relative to incomes with the Halifax house price to earnings ratio at 5.46 in November. While this was the lowest ratio since September 2015, it was still markedly above the long-term (1983-2018) average of 4.26.
The downside for house prices is being limited by a shortage of houses for sale. High employment is also supportive for the housing market while mortgage interest rates are still at historically low levels and will remain so even if the Bank of England does hike rates modestly further over the medium term.