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House prices cool for summer

31st May 2017

Home » Barbour ABI Blog » House prices cool for summer

House price growth is slowing which could have an impact on the speed of housing construction…

Reading over the latest output figures from the Office for National Statistics it appears that construction continues to perform strongly in the first quarter of 2017. The industry grew by 0.2% in Q1 compared with the final quarter of 2016. However, looking at the monthly data in the first quarter it is clear that some momentum was lost in March, with output down by 0.7% compared with February. However, overall the start of the year has shown the market conditions remain favourable.

It is interesting that new housing continues to be the area of construction that fuels growth and this is demonstrated by the fact that output in the sector increased by 0.2% in the first quarter and it also grew in March when other sectors did not. This is set against a backdrop of a housing market that appears to be softening. The Nationwide House Price Index has detected house price falls in both March and April and the Halifax index recorded the first quarterly fall in house prices since 2012. While both of these indices are based on asking prices, the ONS report on sold prices shows that house price inflation across the UK was 4.1% in March, down from 9.4% in June 2016. For clues as to why this is falling, it is worth looking at the regional growth in house prices.

London, so often the centre of housing activity and the main contributor to UK-wide average price growth, has annual house price growth of 1.5%, down from 16% in 2014. It is the east of England which is now the region with the highest rate of house price growth, with a rate of 6.7%.

So, with rampant house price inflation cooling, you may expect some impact on the new build market as the returns available for developers lessen. However, both output and new orders for housing remain strong. What is happening is that there is more interest in the regions with the highest price increases, which is understandable.

However, if price growth elsewhere in the UK starts to moderate as it has done in London, it will be interesting to see whether housing construction continues at its current pace.

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