INSIGHT
Housing market summary
Quarterly update of housing market activity
Q2 2022
DATA & ANALYSIS
OVERVIEW
- The first half of 2022 has continued last year’s theme of very strong house price growth across the country. Nationwide recently reported growth of 11.4% in the UK for Q2, down slightly from the 12.6% in Q1. This represents the strongest rate of growth for the first half of a year since before the Global Financial Crisis.
- This puts the current average UK house price (Nationwide) at £270,500 and the average new build price at £295,000. Both of these figures are over 20% higher than the start of the pandemic.
- Having said this, the most recent Nationwide monthly data points to a slowing in price growth with a 0.1% m/m increase in July which followed a similarly small 0.2% m/m in June. On a rolling quarterly basis, house price growth slowed from 2.3% 3m/3m to 1.7% 3m/3m, the weakest since March 2021.
- Transaction volumes have normalised from the very high levels we have seen over the last two years. The most recent figure of 95,000 in June is back in-line with the average monthly figure pre-Covid (2019). In 2021, transaction levels were the highest we have seen since the Global Financial Crisis and 25% above the 2019 total.
- It has been our view that the deteriorating economic environment would lead to a slowing in house price growth this year. This has taken longer than expected but we still expect a meaningful slowdown later in Q3 and certainly in Q4.
- This is predominately due to the economic environment and outlook. The Bank of England (BofE) announced last week that it expects a five-quarter recession starting in Q4 this year. Inflation hit a 40 year high of 9.4% in June and the rate-hiking response, which we believe will continue despite the predicted recession, will put pressure on house prices along with the slowing economy affecting buyer sentiment and affordability.
- However, some counterbalances exist to the downward pressure from these factors. The Financial Policy Committee (FPC) has just withdrawn the affordability test. In short, this means lenders can increase high LTV and high LTI lending. The question is to what extent they actually do so but initial indications show a willingness with various lenders announcing new 90% LTV and 5.5x LTI products.
- The labour market also remains strong and short-term indicators of demand are still fairly resilient. Google searches for home sales have eased but remain above pre-pandemic levels.
- Rental growth continues to remain strong across the country, with the annual rate of growth accelerating to 3.0% in June from 2.8% in May (ONS). Our outlook is that rental growth should remain strong for at least the next quarter. Supply is constrained and the demand side will be boosted by stretched affordability adding to difficulties in accessing home ownership.
The housing market has been remarkably strong given the wider economic context and particularly rising interest rates.
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