1 House Prices set to rise by over 5% this year and by over 8% in 2014.
House prices are rising with the latest data from Nationwide and Halifax suggesting house prices are rising by 5%. Data from the ONS, indicates prices are rising slightly less in the information available to July. We expect the year on year out turn to be around 5.5% with a further increase in prices of between 7.5% to 10% next year.
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2 Regional Prices will rise too ...
London and the South East are leading the way with price rises averaging 10% in London based on both the Nationwide and ONS data. The ONS suggest prices are increasing less markedly across the regions with some indication prices are still falling in the North West. The Nationwide data suggests the increases are far more widespread averaging over 3.5% across the UK, with marked increases in the East Midlands specifically.
Price rises will spread across the UK, like a tidal wave across the flood plain. We expect an acceleration of house prices across the regions into the final quarter of 2014 and into 2015.
3 Long Term Fundamentals support the price move
The Nationwide long term fundamentals will support the price rise. Real long term house prices are below the trend rate. And the house price to earnings ratio appears to have established a resilient higher level post 2008.
4 As prices rise, the real cost of borrowing falls
As prices rise, the real cost of borrowing falls and with no immediate base rate rises on the horizon for a further two years, the real cost of borrowing will fall to -2% or more increasing to -5% next year. Of itself this is a great stimulus to house market activity.
5 Mortgage Lending will increase by over 20% this year
Mortgage lending is set to increase by over 30% in the third quarter and by over 20% for the year as a whole. This will still be less than half the activity at peak of market but a dramatic turnaround in any case. We anticipate an increase in lending to over £225 billion by 2015.
6 Housing transactions will increase by over 12% this year
Housing transactions, after a slow start to the year, will increase by 24% in the third quarter and by over 12.5% for the year as a whole. We are projecting an increase to over one million transactions in the year, still well down on the peak 1.8 million in 2007 but a significant recovery from the lows of 2008-9.
7 House building set to increase by over 30%
House builders are reacting to the recovery with a significant increase in housing starts. We are forecasting an increase of 30% over the year as activity accelerates into the second half.
We expect further skill shortages in bricklaying and plastering and a significant increase in the cost per 000 index for brick layers.
8 Is this the right time for Help to Buy Stage 2?
Probably not. The house market is on the move. No need to impart a significant demand shock to the recovery which the help to buy scheme represents. The scheme could increase house market transactions by as much as 100,000 in each of three years. The housing sector may increase the new build from 125,000 last year to over 150,000 this year. If we assume further supply increase in 2014, cost price pressures will begin to place additional pressure on the demand price shock.
The Bank of England will not hesitate to take action in this cycle to mitigate price increases. Help to buy will be pared back in the September 2014 review. The spreads on high LTV loans will rise and higher capital provisions for high LTV lending will be in the mixer.
John Ashcroft October 2013
The Saturday Economist
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