UK house prices showed surprising resilience in August, rising 0.6% from July and by 5.6% from a year earlier, according to lender Nationwide’s latest index. In July house prices rose by 0.5% on the month and by 5.2% in year-on-year terms.
While expectations have been for the housing market to come under increasing pressure and price growth to slow in the wake of the UK’s vote for Brexit, house price have held up well in the immediate aftermath of the referendum.
“The pick up in price growth is somewhat at odds with signs that housing market activity has slowed in recent months,” said Nationwide’s chief economist Robert Gardner. “However, the decline in demand appears to have been matched by weakness on the supply side of the market. Surveyors report that instructions to sell have also declined and the stock of properties on the market remains close to thirty-year lows. This helps to explain why the pace of house price growth has remained broadly stable,” he said.
The surveyors mentioned in the report are those who respond to the Royal Institution of Chartered Surveyors (RICS) monthly survey, who in July noted that weakness was apparent across both demand and supply of homes for sale.
“The flow of new sales listings coming to the market has contracted at the fastest monthly pace on record in each of the last three reports,” the RICS said.
Despite the increase in UK house prices during August, expectations for the property market remain mixed. Nationwide notes that while the current large level of uncertainty surrounding the UK economy and labour market could lead to weaker demand for property and therefore lower prices, the Bank of England’s (BOE) stimulus package is designed to ensure lending remains cheap and that banks as well as consumers have access to the newer lower interest rate of 0.25%.
Some economists are less sanguine, however. Howard Archer, chief UK and European economist for IHS Global Insight. “We believe housing market activity is likely to be limited over the coming months and prices will weaken as prolonged uncertainty following the UK’s vote to leave the EU constrains consumer confidence and willingness to engage in major transactions, and also hampers economic activity,” Mr. Archer said. “The fundamentals for house buyers look likely to soften over the coming months with unemployment rising and purchasing power softening.”
While the future of UK house prices is currently uncertain, Nationwide’s August data is sure to be good news for the BOE’s chief economist Andy Haldane. In a recent newspaper interview he told reporters that he considers property a better investment than a pension.
Speaking to the Sunday Times, the experienced economist was very clear over his preference. “It ought to be pension but it’s almost certainly property,” Mr. Haldane said. “As long as we continue not to build anything like as many houses in this country as we need to . . . we will see what we’ve had for the better part of a generation, which is house prices relentlessly heading north.”
While his comments have been criticised, many Britons appear to agree with him, as the size of the UK’s private rental market should attest to. And, until significantly more homes are built over a sustained period to ensure there are enough homes to house the expanding population, Mr. Haldane’s view will likely continue to be shared by others.