The small month-on-month decline in house prices recorded by Nationwide in March probably reflects a temporary softening in demand before the stamp duty holiday was extended. Judging by other indicators, house price inflation will remain high in the coming months.
Cooling in house price growth likely to be temporary
- The small month-on-month decline in house prices recorded by Nationwide in March probably reflects a temporary softening in demand before the stamp duty holiday was extended. Judging by other indicators, house price inflation will remain high in the coming months.
- The 0.2% m/m decline in house prices in March was weaker than the consensus forecast of a +0.4% m/m gain and dragged annual house price inflation down from +6.9% to +5.7%, the softest since last September. (See Table 1.) The weaker figures are likely to reflect the dip in new buyer demand in January and February, when the stamp duty holiday was due to end in March.
- House price growth is unlikely to continue to cool in the near term. The extension of the stamp duty holiday has given buyer demand a renewed boost. Web searches for homes strengthened further to their highest level since 2015 in March, while high sales and limited stock are likely to put further upward pressure on prices. (See Chart 1.) And the base effect of falls in the Nationwide house price index in May and June last year will cause the annual rate to jump higher again when we reach those months this year.
- The regional house price data for Q1, also released today, show strong house price growth is widespread. The largest increase in prices has been in the North West, up 8.2% y/y, while London has seen the smallest increase, of 4.8% y/y. We think that reflects that house prices in the capital were already very high relative to incomes, so affordability is a greater restraint, as much as any pandemic affect. (See here.)
- Overall, the slight decline in house prices in March is unlikely to mark the start of a trend given the ongoing strength of buyer demand. House price inflation will eventually cool in Q4 when the boost from the stamp duty holiday ends. But continued low interest rates, good mortgage affordability, and a strong economic rebound should prevent the current mini-boom being followed by a bust.
Chart 1: RICS Sales to Stock Ratio & Nationwide House Prices
Sources: Nationwide, RICS
Nationwide House Prices – Key figures
House prices (£000s)
Andrew Wishart, Property Economist, +44 (0)7427 682 411, email@example.com