House prices in the UK increased 3.9 per cent year-on-year in July, making the month the strongest for annual price growth since August 2010. The latest Nationwide House Price Index showed residential property values increased by 0.8 per cent last month, placing the average value of a British home at GBP 170,825. This is 12 per cent higher on average than the lows experienced during the financial crisis. However, prices are still around ten per cent lower than the all-time high recorded in late 2007.
Robert Gardner, Nationwide's chief economist, is also quick to advise caution. It seems we shouldn't be getting too excited, as the annual house price growth for July was the result of the low base for comparison. In July 2012, prices actually declined by 2.6 per cent. While the latest figures certainly indicate recovery is taking place, we aren't out of the woods just yet.
"Signs of a modest improvement in wider economic conditions and further modest gains in employment are likely to be lifting buyer sentiment," Mr Gardner said. "An improvement in the availability and a reduction in the cost of credit, partly as a result of policy measures such as the Funding for Lending and Help to Buy schemes, are also boosting the demand for homes." Yet supply remains constrained, forcing prices upward.
Building activity is still subdued in the UK, thanks to a lack of lending and often complicated planning procedures. In Q1 2013 housing completions in England alone were down eight per cent compared to 2012. This puts construction around 40 per cent below the average number of quarterly completions experienced in 2007. As the UK population increases, the shortage of housing stock will create an even bigger problem and rents are already skyrocketing as a result. "The fact that rental growth has been consistently outstripping wage growth reinforces the notion that housing more generally remains in relative short supply," Mr Gardner added.
Nationwide doesn't expect the tide to turn any time soon either. It claims that for every property coming onto the market, 19 people are chasing it, causing extreme competition. Supply and demand dynamics are certainly making their influence felt on the market as a whole.
- Wednesday 07 August 2013