What home owners and would be home owners think about prices is important in any housing market and if you look at sentiment in the UK at the moment then it is clear that the real estate sector is looking healthy.
The latest House Price Sentiment Index from Knight Frank and Markit Economics shows that households perceive that the value of their homes rose in March, the twelfth consecutive month that households across the UK report that the value of their home has increased. The rise in the house price sentiment index reflects the stronger economic fundamentals around the UK. Only 4% of households reported that the value of their property fell over the last month.
The survey suggests that the UK property market continues to rebound sharply, with house price sentiment hitting a fresh record high for the third time in the past four months. Households in all 11 regions covered by the index reported price rises in March, with those living in London perceiving that the value of their home had risen at the strongest rate, followed by households in the South East, the East of England and the South West.
But, as always, it is interesting to look at the data underlying the headline figures. In this report it is clear that the market in the UK varies considerably and this patchwork market isn't always obvious.
While households in all regions report rising house prices, the pace of growth varies greatly, with those in the North East reporting a very slight uptick, compared to Londoners who reported the biggest increase in prices since the survey began in 2009.
So, although the latest sentiment data is now broadly consistent with double digit annual UK house price growth, regional disparities persist and the steep upward trajectory in London and the South East is once again boosting the UK wide picture.
It is also interesting to look more closely at how different age groups perceive the market. In this report those over 55 expect the biggest rise in prices over the next 12 months. Those aged between 45 and 54 expected the next strongest growth. This corresponds with those who own their home outright being the most positive about increasing values, as these two categories are likely to have a significant overlap.
When it comes to the future trend in house prices, all regions expect growth over the next 12 months, and the North/South divide is more muted. While Londoners expect the biggest rises, those in the West Midlands expect a bigger uplift in values than at any time since the survey started. The future index reading for the North West is also the second highest on record. This positive outlook is backed up by figures released a few days ago from the Office for Budget Responsibility (OBR). Its revised forecast for house price growth in the UK in the next five years has increased from 27% to 30.8%.
According to the OBR, growth of 8.6% is expected in 2014/2015, 7.4% in 2015/2016, 4.3% in 2016/2017, 3.7% in 2017/2018 and 3.7% again in 2018/2019. It says in its latest forecast report that by the end of the forecast period, house prices are expected to be 0.5% below their pre-crisis peak in real terms and the house price to income ratio to be 2.3% below its pre-crisis peak.
The OBR also expects transaction volumes will rise at a faster pace than originally forecast over the coming five years. The independent fiscal body estimates that housing transactions in 2014/2015 will be 1.28 million, some 6% higher than it forecast in December.
Index data seems to bear out the optimism. House prices in England and Wales increased by £2,500 in February, the largest monthly rise for 21 months taking the average price to £257,951, a new record high, according to the latest LSL Acadata index.
It also shows that monthly sales are set to reach 66,000, the highest February total since 2008, which means that house sales in January and February were only 12% below average in the decade before the credit crunch.
New sellers have helped push up property prices in the UK, with the average asking price seeing a rise of 3.3% or £8,103 last month, according to Rightmove. Its latest report shows that the average property coming to the market is now priced at £251,964, some 6.9% or £16,223 more than a year ago which is the highest annual rate for over six years.
The real estate website also reports that new listing numbers jumped by 18% compared to a year ago, but the supply shortage continues as they fail to keep pace with numbers coming off the market.
Even sectors that have struggled are now improving. For example, the prime residential market at £400,000 and above across Scotland experienced a strong performance last year, with a 22% annual increase in activity, according to the latest analysis report from Savills. It shows that the market was robust from spring 2013 onwards with deals being done throughout the winter period and Savills says that the prime market is being boosted by the hubs of Edinburgh, the Aberdeen area and Greater Glasgow, where prime activity increased annually by around 25% in each location.
But with Help to Buy phase one being extended in the Budget until 2020 the big worry is going to be the potential for a property price bubble in London and the South East. It will be interesting to see how measures in the Budget will affect the market outside of these areas. There is the potential for it to boost regional markets. Indeed the latest figures from the government show that more than 17,000 people bought homes under the first nine months of Help to Buy and 77% of them were outside London and the South East.
So even although there are bubbles potentially breaking on the horizon, these figures suggest the recovery is going to be more widespread across the country.
Ray Clancy
Editor Property Wire
