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We start the week with fresh evidence that the UK housing market is weak. Average UK house prices fell by 5.3% in the year to September, or by about £14,500, a new report from lender Nationwide shows, as high interest rates hit affordability.
That matches the 5.3% drop in August, on Nationwide’s gauge of the housing market, which was the weakest rate since July 2009. On a monthly basis, price were flat in September on a seasonally adjusted basis, Nationwide reports, with the average house price now £257,808.
South West England was the weakest performing region, with house prices down 6.3% year on year in the last quarter. But the smaller annual fall was recorded in Northern Ireland, where prices are 1.8% lower than a year ago. In Wales, prices fell 5.4% per year in the July-September quarter, down from a 1.4% fall in April-June.In Scotland, price falls also accelerated – to -4.2%, from -1.5% in Q2.
Nationwide’s chief economist Robert Gardner said: “Across northern England (which comprises North, North West, Yorkshire & The Humber, East Midlands and West Midlands), prices were down 3.9% compared with Q3 2022.The North was the strongest performing northern region, with the annual rate of change improving from -3.3% to -2.0%, while the East Midlands was the weakest, with a 5.5% decline."
He said falling affordability is hitting house prices: “Housing market activity remains weak, with just 45,400 mortgages approved for house purchase in August, circa 30% below the monthly average prevailing in 2019 before the pandemic struck. This relatively subdued picture is not surprising given the more challenging picture for housing affordability.
"For example, someone earning an average income and purchasing the typical first-time buyer home with a 20% deposit would spend 38% of their take-home pay on their monthly mortgage payment – well above the long-run average of 29%."
But, recent falls in borrowing costs – if sustained - will ease some of the pressure on those remortgaging or looking to buy a home
Gardner adds that although the Bank of England left interest rates on hold last month at 5.25%, mortgages rates are unlikely to return to the historic lows seen in the aftermath of the pandemic.
He explains: "Instead, it appears more likely that a combination of solid income growth together with modestly lower house prices and mortgage rates will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim.
In one line, the UK housing market is “close to bottoming out.” That’s the verdict from Samuel Tombs, chief UK economist at Pantheon Macroeconomics, on today’s housing data from Nationwide.
He says affordability should begin to improve over the coming months, as mortgage rates respond to the recent decline in expectations for bank rate, and as wages continue to rise, albeit not at their recent frenetic pace. The recent recovery in consumers’ confidence suggests that demand also might start to firm up. The pick-up in rents also will increase the share of income that first-time buyers are willing to devote to housing. Accordingly, the downturn in house prices probably has only a few months left to run."
The UK housing market is in the middle of a soft landing rather than a serious correction, predicts the EY ITEM Club group of economic forecasters, who expect house prices to decline over the rest of this year and into 2024, with prices eventually about 10% below their record peak last year.
Also coming up today ... The latest health checks on factories in the UK, due this morning, are likely to confirm that activity shrank in September, as early data last month showed. Purchasing manager surveys from across Europe will probably also show eurozone manufacturing contracted last month.
Stock markets are set to open higher, with investors relieved that a US government shutdown was averted at the last minute over the weekend.
And UK water companies are presenting plans to upgrade their networks to tackle pollution problems, with customers bills to bear the costs.
The agenda
• 7am BST: Nationwide’s house price index for September
• 9am BST: Eurozone manufacturing PMI (final reading) for September
• 9.30am BST: UK manufacturing PMI (final reading) for September
• Noon BST: UK water companies to publish five-year business plans to regulator Ofwat
• 3pm BST: US manufacturing PMI (final reading) for September
We’ll be tracking all the main events throughout the day ... |
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