There was no sign whatsoever of the surge in house prices abating in November as annual growth in the Halifax index rose to a fresh four-year high. Tight market dynamics suggest that prices will continue to rise over the coming months as buyers take advantage of the stamp duty holiday. But we suspect much of the jump in prices will be reversed in 2021.
House prices continue to rise strongly, but for how much longer?
- There was no sign whatsoever of the surge in house prices abating in November as annual growth in the Halifax index rose to a fresh four-year high. Tight market dynamics suggest that prices will continue to rise over the coming months as buyers take advantage of the stamp duty holiday. But we suspect much of the jump in prices will be reversed in 2021.
- The 1.2% rise in the Halifax house price index in November was much larger than the 0.3% increase in October. That nudged the annual rate up from 7.5% to 7.6%, a fresh four-year high. (See Table 1.) The Halifax index is no outlier as it has sometimes been in the past, with annual price growth in the Nationwide measure hitting a five-year high in November. (See here.) What’s more, on a 3m/3m basis, arguably the best measure of near-term momentum in prices, house price growth remained close to the highest pace seen since 2004. (See Chart 1.)
- The October RICS survey showed that because sales activity was at its highest since before the EU referendum, stock was being snapped up quickly leading to prices being bid up by competing buyers. (See here.) So in the same year that GDP records its largest fall in 300 years annual house price growth in Q4, the traditional benchmark of annual performance, is set to be about 7.5% according to Halifax, the strongest since 2015.
- However, as we argue in depth here, this cannot last. The boost to house prices from pent up demand from the first lockdown and the stamp duty holiday will end in 2021. At the same time, when the furlough scheme and mortgage payment holidays end, rising unemployment and mortgage payment difficulties will weigh on prices. After the stamp duty holiday ends in March we think that most of the 2020 surge in prices will be reversed. Our forecast is that prices will dip by 5% y/y next year.
Chart 1: Halifax House Price Index
Table 1: Halifax House Price Index
House prices (£000s)
Andrew Wishart, Property Economist, +44 (0)7427 682411, firstname.lastname@example.org