Surprisingly bright numbers from major national mortgage lenders caught analysts by surprise – but is the real estate market on the rise again or is there something else? Annabelle Dixon is watching in “Property Talk” this week.
Spring seems to have finally arrived, and just in time. And it’s not just the weather that’s improving. Monthly house prices too, for the first time since last August, according to the latest Nationwide House Price Index.
House prices rose 0.5% in April after seven long consecutive months of falling. Meanwhile, the annual rate of growth in house prices rose to -2.7% last month from -3.1% in March. This leaves prices 4% below their August 2022 peak.
Commenting on the numbers, Nationwide chief economist Robert Gardner says there were “preliminary signs of recovery.”
In reporting monthly growth, Nationwide is following in the footsteps of fellow lender Halifax, which has been relatively more upbeat lately. Halifax has reported a string of monthly house price hikes this year. This just goes to show how confusing the interpretation of house price indices can be.
The question on everyone’s lips right now is: Is this upsurge an isolated incident or a sign of a broader trend?
“Looks like the worst is behind us”
Martin Beck, chief economic adviser at EY ITEM Club, cuts to the chase: “One month doesn’t set a trend, and given the degree of volatility in house prices, the Nationwide rally in April may not be long-lived. But it’s consistent with other indications that market weakness may have bottomed out.”
And there are encouraging signs. According to Zoopla, the housing market continues to rebalance as buyer interest in homes for sale hit its highest level this year after Easter.
“Home market conditions continue to improve as buyers return to the market and new deals are made,” said Richard Donnell, chief executive of Real Estate Portal.
“House prices have shown a very modest fall and are expected to decline by just 1% by the end of the year. The worst of the price adjustment seems to be behind us.”
Green shoots, potential headwinds
Market analysts point to rising consumer confidence and an increase in mortgage approvals.
Gardner says: “If inflation falls sharply in the second half of the year, as most analysts expect, that is likely to further bolster sentiment, especially if labor market conditions remain strong.”
But despite rising house prices, there are still potential headwinds that could destroy hopes for a long-term trajectory for rising house prices. At least according to some.
Gardner warns that “any recovery is likely to remain rather banal” due to household financial problems and higher mortgage rates.
At the EY ITEM Club, Beck says home prices “remain very high on most affordability measures.”
“The cost of borrowing could rise further if, as the EY ITEM Club expects, the Bank of England raises interest rates again this month,” he explains. “And while the prospect of a rapid fall in inflation should ease the financial hardships faced by households, real incomes are likely to continue to fall for most of this year. So the risk of a sustained correction in house prices has not gone away.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, argues in The Times that last month’s rebound is “probably just a rebound from a downtrend.” Elsewhere, in the Financial Times, he says he “expected the housing market to bottom only at the end of this year.”
At the moment, all attention is focused on the Bank of England, the next interest rate decision is scheduled for Thursday, May 11th. Given the constant stream of surprises we face these days, who knows where that might lead.
Six months after Liz Truss’s disastrous tenure as prime minister, the effects are still being felt on property.