The latest data from the Halifax house price index shows that annual house price growth fell back slightly to 2.1 percent in the year to May to July 2017.

This is 0.2 percent lower than in the three months of February to April and the lowest year-on-year growth seen since April 2013.

This, says the mortgage lender, is the fourth successive quarterly fall in residential property price growth, which has not happened since November 2012.

Between June and July house prices rose by 0.4 percent, regaining some of the 0.9 percent lost in May to June.

The average house price is now £219,266 according the data from the Halifax.

Property Keys (PD)

Commenting, Howard Archer, Chief Economic Advisor to the EY ITEM Club, said:

The Halifax reported house prices rose a lacklustre 0.4% month-on-month (m/m) in July, after falling 0.9% in June. With house prices rising by just 0.3% in May, this meant that house prices edged down by 0.2% in the three months to July compared to the three months to April.

“This was also the fourth successive month that house prices had edged down on a three-month/three-month basis, the first time this has happened since 2012.

“Consequently, annual house price inflation on the Halifax measure slowed to 2.1% in the three months to July, which is the lowest rate since the three months to April 2013. It was down from 2.6% in the three months to June, 3.3% in the three months to May and a peak of 10% in the three months to March 2016.”

Halifax July figures similar to Nationwide

The Halifax data for July follows on from the Nationwide reporting that house prices rose a modest 0.3% m/m in July. This reinforced the suspicion that the 1.1% m/m jump in house prices seen in June was largely a correction after house prices had previously fallen in each of the previous three months. Indeed, house prices had still edged down 0.1% quarter-on-quarter (q/q) in Q2 despite June’s jump.

“Annual house price inflation on the Nationwide’s measure moderated to 2.9% in July after rising back up to 3.1% in June from a 35-month low of 2.1% in May. It is down from 5.6% in August 2016 and a peak of 5.7% in March 2016.”

House prices soft as housing market activity lacklustre

Housing market activity is currently lacklustre amid weakened consumer fundamentals. The latest data from the Bank of England (BoE) shows that mortgage approvals for house purchases slowed to a nine-month low in June.

Outlook for house prices

House prices look unlikely to rise by more than 2% over 2017. House prices could well be essentially flat over 2018.
 
“The fundamentals for house buyers are likely to remain weak over the coming months with consumers’ purchasing power continuing to be squeezed by inflation running higher than earnings growth. Additionally, housing market activity is likely to be hampered by weakened consumer confidence and limited willingness to engage in major transactions. Indeed, GFK reported a further drop in consumer confidence in July to its lowest level for a year, with a decline in the major purchase index.
 
“Housing market activity and prices are also likely to be pressurised by stretched house prices to earnings ratios and tight checking of prospective mortgage borrowers by lenders. According to the Halifax, the house price to earnings ratio reached 5.80 in December (the highest level since August 2007) and was still as high as 5.65 in July. This is well above the long-term (1983-2017) average of 4.19. Furthermore, mortgage lenders are under pressure from the Bank of England (BoE) to tighten their lending standards.

“The downside for house prices should be limited markedly by the shortage of houses for sale. High employment and very low mortgage rates are also currently supportive. The June RICS survey showed that new instructions to sell fell for the 16th month running in June, sending average stock levels to a new low.

“There is a possibility that potential house buyers may also be concerned by the BoE indicating that interest rates could eventually rise by more than the markets currently expect, although the likelihood of a near-term hike have seemingly receded. While any increase in interest rates would be small and mortgage rates would still be at historically very low levels, the fact that it would be the first rise in interest rates since mid-2007 could have a significant effect on housing market psychology. It would focus minds on the prospect that, sooner or later, they may have to deal with higher mortgage rates.”

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