ONS House Price Index: record rises but shakier foundations

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the publication of the ONS House Price Index, showing record price rises but that it’s based on shakier foundations.

Key points from publication:

Average house prices were up 12.8% in May – up from 11.9% in April
The average price hit £283,000 – up £32,000 in a year
But there are early signs of a shift in the market

Sarah Coles says:

“House prices have risen through the roof again, but look a little closer and the foundations are starting to look shakier.

“The average house price hit another record high in May, and rose faster than any time since the peak in June last year. Our passion for property has held out against enormous financial pressures for months now, and continues to power higher prices.

“However, we’re starting to see small changes in the market, which are likely to mean weaker growth in the coming months, especially if interest rates are hiked in August.”

Subtle changes:

“On the face of it, it seems as though the market has come through months of trials without showing any weakness, but there are some signs that things are starting to shift.

“Changes are still relatively small at this stage, but are worth noting. Recent price rises have been driven to a large extent by an imbalance of supply and demand, and there has been a slight shift here. Rightmove said that this month the number of buyers has dropped back 7% in a year and the number of sellers has risen 13%.

“We’re still seeing a quarter more buyers than the same time in 2019 and 40% fewer sellers, but the gap is closing.

“Meanwhile, the Bank of England reported that an increase in the number of properties on the market meant house price inflation was starting to slow in some areas between April and June, and that mortgage approvals in May were slightly below the pre-pandemic average.

“Approvals are a useful measure of what’s likely to happen to demand over the coming months.

“There are also signs that bidding wars are starting to ease off slightly. In the RICS report for June, 50% of agents said that on average houses worth less than £500,000 were selling for more than the asking price.

“Meanwhile, those worth more than £1 million, were selling (on average) for less than the asking price. Price dips tend to be more exaggerated at the top of the market, so it’s worth keeping an eye on the direction of travel.

“We’re unlikely to see a straight line downwards from here. The commercial indices are in for June, with Nationwide showing price rises falling back again, and Halifax showing the fastest rate of growth in 18 years.

“However, over time, we will see price rises gradually trend downwards.”

The knockout blow:

“It’ll take a while to filter through into the figures, but things are likely to get even tougher as we go through the summer.

“A combination of higher GDP figures than expected in May, and inflation hitting 9.4% in June, means we’re expecting interest rates to rise again in August by as much as 0.5 percentage points.

“And while existing owners are largely protected by fixed rate mortgages for now, new buyers are going to have to factor in higher borrowing costs.

“Meanwhile, some of the prices rises we’re having to absorb are making life incredibly difficult – from the cost of gas doubling in a year to petrol prices up more than 40% over that time.

“And there’s a threat of worse to come in October, when energy prices are expected to rise 65%.

“Anyone considering stretching their finances to afford a new home at this stage, may well be starting to get cold feet.”

Other statistics from the release:

Detached house prices were up 14.9%, and semi-detached were up 13.6%, while flats were up 8.3%.
New build prices were up 26.5%.
House prices in London were still the highest in the UK, at£526,000.
Prices inthe South-West saw the highest annual growth at 16.9%, while London saw the lowest annual growth of 8.2%.
Prices in the North-East remain the lowest in the country, at £154,000.

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay