Steady start to 2017, says Nationwide but outlook for housing market “clouded” by wider economic uncertainties
The outlook for the housing market is unclear, according to the Nationwide’s first market analysis for 2017, since its prospects are linked to conditions in the wider economy, which are themselves uncertain.
Even so, Nationwide’s January House Price Index (HPI) said that annual house price growth has remained “broadly stable” at the start of 2017 at 4.3%. This is slightly down from December’s growth rate of 4.5%. House prices increased by 0.2% over the month, after taking account of seasonal factors, it said.
“The outlook for the housing market remains clouded, reflecting the uncertainty surrounding economic prospects more broadly,” said Robert Gardner, Nationwide’s chief economist. “On the one hand, there are grounds for optimism. The economy has remained far stronger than expected in the wake of the Brexit vote.
“Recent data indicates that the economy didn’t slow in the second half of 2016 and the unemployment rate remained stable at an 11-year low in the three months to November. However, there are tentative signs that conditions may be about to soften. Employment growth has moderated, and while wage growth has edged up in recent months, in real terms (i.e. after adjusting for inflation), earnings growth has already slowed.
“With inflation set to rise further in the months ahead as a result of the weaker pound, real wages are likely to come under further pressure. Employment growth is also likely to continue to moderate, should the economy slow as most forecasters expect.
“On balance, we agree with the consensus view that the economy is likely to slow through 2017 as the squeeze on household budgets intensifies and heightened uncertainty weighs on business investment and hiring.
“Nevertheless, we continue to believe that a small rise in house prices of around 2% is more likely than a decline over the course of 2017, since low borrowing costs and the dearth of homes on the market will continue to support prices.”
Reacting to the Nationwide’s HPI, Rob Weaver, director of investments at property crowdfunding platform Property Partner, said: “Despite the UK housing market softening somewhat, prices continue to clamber up unremittingly. The severe shortage in stock and available homes for sale is the underlying dynamic propping up prices coupled with ultra-low borrowing rates.
“Estate agents appear to have a dearth of properties on their books and hence demand keeps outstripping supply. And although it’s early days, we expect over 2017 as a whole, that price growth will remain positive.
“London, formerly the runaway leader in the UK property market, has seemingly lost momentum in prime central locations. But outer boroughs in the capital, particularly areas of regeneration and along the Crossrail route, could potentially see house prices steam further ahead once the stations are complete next year.
“The North-South divide may well narrow as London loses its lustre over affordability issues and other big cities like Manchester, Leeds and Birmingham play catch up.
“Whatever blows the market might have suffered - whether it’s the cooling effect of Brexit uncertainty, changes to tax or tighter lending criteria - UK residential appears to remain resilient and stable.
“However, buy-to-let landlords have been firmly in the crosshairs over the past year, with the 3% stamp duty hike, regulatory change and come this April, the start of gradual cuts to mortgage interest tax relief. Increasing costs of running their business could mean higher rents for tenants.
“Over the long term, residential property price growth and the rental income combined have outperformed most other asset classes.”
Russell Quirk, chief executive of eMoov.co.uk, said: “Today is the first look at house price movement for the new year as the market whirs back into life after Christmas and, on the face of it, the overarching stability and market confidence that was seen throughout 2016 seems to have spilt over into 2017.
“It’s fair to say that as far as external influences are concerned 2017 has already thrown up its fair share of curve balls, particularly across the pond. But the ripple effects of these distance influences are unlikely to reach the UK property market unless you own a second home in high-end London.
“That said, this year is probably the year we see some form of the knock-on effect from the turbulence of 2016 where price growth is concerned. But this is likely to come in the form of a slower rate of escalation rather than a negative movement.
“Despite this potential marginal slowdown, it is widely predicted that the market will remain robust throughout the coming year and prices will maintain their upward trend, which certainly seems to be the case based on today’s numbers.
“A new year and another increase in house prices will provide a positive outlook for UK homeowners in 2017, perhaps not so positive for those still struggling to buy.”
Jonathan Hopper, managing director of Garrington Property Finders, said: “January’s icy weather was mirrored by a chill in the housing market. But though the national average price of a home fell by a few hundred Pounds, momentum remains.
“The annual rate of price inflation is virtually the same as it was at this time last year, and six months on from the Brexit earthquake, the market has settled into its familiar pattern of steady growth.
“But the days of double-digit price rises are gone, and while the market fundamentals are strong enough to drive further growth this year, progress will be sedate rather than stellar.
“Retailers’ ringing tills at Christmas and bumper levels of consumer credit suggest consumer confidence remains buoyant, but January’s spike in consumer inflation could be a harbinger of changes to come.
“With the prospect of an interest rate rise – and of the cost of living rising faster than people’s wages – back on the horizon, caution will become a dominant force in 2017.
“With the only certain thing about the Brexit saga being that it will continue to generate uncertainty, accurately forecasting market conditions over the coming months is a huge challenge.
“On the front line we’re seeing that buyers are frequently price sensitive, yet committed. Prices are being supported by the imbalance between demand and supply, but good deals are being done on correctly-priced quality homes.
“The modestly improving picture painted by January’s index may well set the tone for the year ahead. On this evidence we will see further price rises, but at a more subdued pace as house price to earnings ratios begin to bite in many parts of the country and restrict price growth.”
Ben Madden, managing director of London estate agents Thorgills, said: "House prices continue to sit safely nestled in the eye of the storm. While impacting political events swirl around, the steady upward march of house prices remains underpinned by a shortage of housing stock and ongoing low borrowing costs for buyers.
"These two key factors seem unlikely to change in the short-term while the economy seeks steady ground - although prospective buyers will have half an eye on the outcome of tomorrow's interest rate meeting.
"The long-awaited housing white paper, which we could see next week, will also give us a good indication of how the government intends to tackle this essential lack of housing. In the meantime, property prices continue to ride out the maelstrom and look set to continue on their ponderous upward trajectory in the year ahead."