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When will annual house price growth fall to zero?

Hometrack, which supplies V10 with its market valuation data, released its UK House Price Index and commentary today and claims that the pace of house price rises is expected to drop 40% by the end of 2022.

House Prices

It is predicting that Y-O-Y house price inflation will slow from its current 8.3% to 5% by the end of this year – that’s a 40% drop in the pace of increase. In March house price inflation was running at 9.3% so the peak in Y-O-Y increases seems to have passed which reflects not only general supply and demand trends in the market but affordability in local markets.

Demand Drops

The report also highlighted that demand in April was 58% above the previous April in 2021. However, that peak has clearly passed as Hometrack are now reporting buyer demand to be only 25% above the same period in June 2021 – representing a 57% drop in the pace of demand increases Y-O-Y. Nevertheless, overall demand is up compared to 2021.

Supply Surges

Meanwhile the supply of homes to the market has increased Y-O-Y from 3% last month to 5% this month – up 67%. However, the number of available properties to buy is still 29% less than it was at the same point this time last year. Overall supply is down compared to 2021.

The impact of affordability on house price inflation

Hometrack commented “ This analysis demonstrates that while the direction of house price growth is dictated by the balance of demand and available supply, the pace of price changes is dictated by housing affordability. The Zoopla house price index shows that the fastest price gains continue to be seen in the most affordable housing markets while unaffordable markets lag behind as affordability pressures price out growing numbers of households and limit the potential for price gains.”

So, for example Wigan has seen an 11.8% increase Y-O-Y but central London only a 1.7% rise.

The London Experience

The London market arguably peaked a couple of years ago with rampant house price inflation as demand and sales surged. Anecdotally this has cooled in the last 18 months as prices reached their peak and demand slowed due to affordability. The same effect is likely to occur in other areas outside of London which are likely to slow even faster due to increasing mortgage rates and household cost factors. London has entered a period of market stability whereas outside of London V10 expects local markets to show strong house price inflation before flatlining during 2023.

The Hometrack report comments:

“Our analysis suggests 4% is a key level for mortgage rates and one beyond which we would expect to see zero annual house price growth.”

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