The drop in the Halifax house price index in January confirmed that the turn of the year coincided with a change of momentum in house prices. We expect house prices to continue to drop back over the course of 2021 as the stamp duty holiday ends and unemployment continues to rise.
House prices start to slip
- The drop in the Halifax house price index in January confirmed that the turn of the year coincided with a change of momentum in house prices. We expect house prices to continue to drop back over the course of 2021 as the stamp duty holiday ends and unemployment continues to rise.
- The 0.3% m/m drop in the Halifax house price index in January was the first drop since May 2020, and matched the decline in the Nationwide index. (See Chart 1.) That caused annual growth on the Halifax measure to decline for a second consecutive month, from 6.0% in December to 5.4% in January. (See Table 1.)
- With both Halifax and Nationwide recording a drop in January, the looming end of the stamp duty holiday in March appears to be reversing the 2020 house price surge. Both indexes are based on mortgage approvals, which are normally secured about two months before completion. Very high transaction volumes have led to delays in conveyancing, so the drop in prices probably reflects the increasing likelihood that those at the approval stage of the home moving process will miss out on the tax saving.
- It is highly uncertain how protracted and severe the drop in house prices will be. We think that the withdrawal of policy support and rising unemployment will cause house prices to slip back for much of the year. But our forecast that Bank Rate will stay at 0.10%, ensuring mortgages remain affordable, and that the economy will recover swiftly as COVID-19 restrictions are eased should mean that house prices stabilise by the end of the year and increase again in 2022. (See here.) We have pencilled in a 4.0% drop in house prices in 2021, followed by an 2.5% rise in 2022.
Chart 1: Nationwide & Halifax House Price Index
Sources: Nationwide, Halifax, Capital Economics
Table 1: Halifax House Price Index
House prices (£000s)
Andrew Wishart, Property Economist, +44 (0)7427 682411, firstname.lastname@example.org