House price growth expected to be held back by increased supply next spring

Despite rising inflation and the end of the holiday and stamp duty holiday scheme, growth in UK house prices continues to negate economic gravity as the holiday season approaches. However, what goes up must surely come down – eventually.

Knight Frank’s latest market analysis shows that a combination of rising interest rates and a much-needed increase in housing supply are likely the culprits to end the seemingly endless streak of price increases in housing stronger than usual.

Nationwide reported that the UK average price exceeded £ 250,000 in October for the first time. Indeed, a new analysis shows that the total value of the housing stock in England and Wales was £ 7.68 trillion in July 2021, which is an increase of £ 720 billion compared to March 2020. , while the total value was £ 6.96 trillion. The study, which calculates the total value of all private dwellings, takes into account exchange prices as well as changes in house prices. A higher overall figure may reflect a greater number of households in a given local authority as well as higher value properties.

The combined housing stock in the top ten local authorities by value also crossed the trillion pound mark during the pandemic, from £ 978 billion to £ 1.007 billion. However, there has not been an increase everywhere.

The highest total in July this year was £ 157.8 billion in London’s central Westminster district, down 10.1% from March 2020. The drop was highest in England and in Wales, but is understandable given the high proportion of apartments in the area and in fact fewer international buyers have been able to make it to the UK.

However, it is one of only three local authorities in England and Wales to have seen the value of its housing stock drop over the period, with Lambeth (-2.2%) and Wandsworth (-1, 1%).

There have been other interesting changes in the ten most valuable areas during the pandemic. Cornwall edged Richmond-Upon-Thames in eighth place while Leeds replaced Ealing in tenth place. Both changes can be explained by the growing demand for space and we have previously explored how Yorkshire, in particular, has benefited from this trend.

The three biggest increases over the period were all in the North West of England: Rossendale (24.2%), Wirral (21.6%) and Liverpool (21.6%).

Two factors will slow down this strong growth. The first is rising interest rates. Last week the Bank of England kept the key rate at 0.1% but a hike is clearly ahead.

However, it would be wrong to overstate the short-term impact on the UK housing market. Rates were 0.75% before the Covid strike and any effect is likely to be limited as long as rates stay below that level. What is different between now and early 2020 is the presence of inflationary pressures, which may cause demand to begin to unravel depending on the elasticity of the definition of “transient”. Longer term, it will require readjustment as rates normalize, a process that has been delayed by the pandemic.

Over 3.5 million first-time home mortgages have been issued since the base rate fell to 0.5% in March 2009. This is a large group of homeowners who don’t know what to expect. that’s when interest payments increase significantly.

The other item to watch closely is supply, which will put downward pressure on prices as it rises. The housing market is known to be seasonal, so can we tell what will likely happen next spring?

James Cleland, head of Knight Frank’s Country, says the owners are already positioning themselves for 2022: “We are starting to see a noticeable increase in the number of homeowners contacting us to list their property next spring. For savvy sellers, the best time to put their property on the market is probably in January, when there are a large number of buyers.

So it’s reasonable to assume that fewer parts of the country will experience double-digit house price growth around this time next year.

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About Robert Valdivia

Robert Valdivia

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