Are house prices defying gravity?

The latest house price report from Halifax showed the average property in the UK is now valued at £294,845. This is a monthly increase of 1.8%, the largest since 2007, much to the puzzlement of experts. So, how are UK house prices continuing to defy gravity?

Annual growth stubbornly strong

The report by Halifax shows that house prices in the year to June 2022 increased by 13%, the highest annual rise since 2004. Larger detached properties saw their value increase by 13.9% over the last year compared to just 7.6% for flats. Set against a backdrop of the cost of living crisis, struggling economy and the Ukraine conflict, it isn’t easy to comprehend why the overall market is so strong. However, there are several possible reasons:-

Low-income families hit hardest

In relative terms, low-income families in the UK have been hit hardest by the cost of living crisis. But, typically, this area of the population is less active in the property market; therefore, the ongoing economic demise has less impact than expected.

Lack of available properties

As always seems to be the case when property prices outperform expectations, Halifax confirmed there was a lack of suitable homes for sale. Consequently, with buyers outstripping sellers, this has seen prices pushed higher. However, the Covid-related trend towards more significant properties, detached homes, away from city centres has been maintained. This is despite suggestions that the market would return to the old status quo.

High earners active in the market

While those on relatively low incomes are mostly inactive, higher earners are using funds saved during the pandemic to invest in property. Moreover, the fact that mortgage rates are now in an apparent up trend may well have shortened investment timescales in this area.

How are Wales, Northern Ireland, and Scotland performing?

It is safe to say that house prices across the UK have benefited from increased investment and a lack of stock over the last couple of years. Consequently, it will be no surprise to learn that over the last 12 months:-

• House prices in Northern Ireland increased by 15.2%, with the average property now valued at £187,833
• Wales saw a sharp increase of 14.3%, with the average property now valued at £219,281
• In Scotland, the average property price broke through the £200,000 barrier for the first time, hitting £201,549 after a 9.9% increase

As experts continue to talk down the UK property market, with an obvious slow-down on the horizon, it continues to surprise on the upside.

Surprise economic figures

Amidst concerns that the UK economy is slipping into a recession, GDP figures released today showed a 0.5% increase during May. This compared to a 0.2% decline in April and expectations of zero growth in May. While observers point to specific growth in holiday bookings, GP appointments, and construction, set against a weakened retail sector, this is still a surprise. It is unlikely that this trend will continue in the short to medium term, but forecasts are akin to a lottery at the moment.

No talk of negative house price growth

Even though Halifax is adamant that UK house price growth will slow down in the short to medium-term, they seem reluctant to forecast negative growth for 2022. Even though many predict a fall in property prices in 2023, some believe growth will remain in positive territory.

We know that interest rates are creeping higher, likely to increase by 0.5% at the next MPC meeting, and mortgage rates are following suit. However, the cost of living crisis is not over, and the same is true of the Ukraine war. There are many challenges ahead for the UK economy, but the UK property market appears, at this moment at least, to be coping much better than other asset classes.