House price growth doubles, but is not what it seems: ONS

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the ONS house price data, showing house price growth doubles, but is not what it seems.

Key points from publication:
    • ONS House price data for July was released today. 
    • Land registry data for July was also published. 
    • Average house prices were up 15.5% in the year to July – almost twice the 7.8% rise in the year to June.
    • The is the highest annual inflation rate since 2003.
    • It reflects the distorting impact of the end of the most generous period of the stamp duty holiday last year.
    • Average prices rose £6,000 between June and July – compared with a fall of £13,000 a year earlier.
    • The average price hit a record £292,118 -up £39,000 in a year.
Sarah Coles says:

“House price growth has doubled in a month, growing faster than for 19 years, but all is not what it seems. This is the latest step in a house price Hokey Cokey and is the result of changes to the stamp duty holiday last summer. It doesn’t affect the outlook for the market, which is facing real challenges.

“Distortions from the end of the most generous period of the stamp duty holiday last June are playing an enormous role in price rises. There was a burst of demand last June, and people rushed to get sales over the line before the deadline – pushing prices up. As a result, we had a lull in July where prices fell back month-on-month and annual rises slowed to 7.1%. We’ll see echoes of this through the next few months, as we get another bump and a dip from the end of the stamp duty holiday in September last year.

“Higher prices were being sustained by a shortage of supply. With an average of 36 properties on each agent’s books, we’re still close to an all-time low in the availability of property for sale. However, underlying demand is getting weaker. It has been falling since May – the longest stretch of shrinking demand since the onset of the pandemic, and mortgage approvals were below pre-pandemic levels. If these trends in demand continue, it’s only a matter of time before we see price rises slow significantly.

“The announcement of the Energy Price Guarantee raises the question of whether it will be a shot in the arm for the market. The fact that we won’t see unspeakable energy price rises in October or January will have come as a relief to millions of people and may well have eased concerns about rising prices this winter for some buyers. However, there are still very good reasons why it may not be enough to significantly alter predictions of a property market slowdown.

“Even at this level, sky high bills will be a stretch for millions of people, and the relentless rise in the cost of food and other household bills will put us under even more pressure. Meanwhile, if the Bank of England raises rates again next week as expected, it’s going to make higher house prices even less affordable. We can expect the maths to stop adding up for increasing numbers of buyers, and their mortgage lenders, which could dampen price rises.

“We’re likely to reach a tipping point if we hit a recession. Growth was flat for the most recent quarter, and lower than expected, so while we haven’t tipped over into a shrinking economy, we may well be on the verge of it. High employment levels have been key to the health of the property market, so if jobs become increasingly insecure it could make all the difference.”

Other statistics from the release:
    • Detached house prices were up 17.3%, and semi-detached were up 16.8%, while flats were up 9.3%.
    • New build prices were up 22.1%.
    • House prices in London were still the highest in the UK, at a record £543,517.
    • Prices in the South West saw the highest annual growth at 20.7%, while London saw the lowest annual growth of 9.2%.
    • Prices in the North East remain the lowest in the country, at £163,237. This is a record high for the region.

 

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay