Modest price growth fails to boost transactions and sentiment
House prices showed a modest rise of 0.3% in November, according to Nationwide. This puts them at 1.4% up from the start of the year, on track to slightly overshoot our annual growth forecast of 1.0% for the country.
Price growth may have been positive, but this is not echoed in other key market metrics, which reflect this period of heighted Brexit-related uncertainty. The RICS survey showed a significant drop in the perception of price paid, with surveyors at their most pessimistic since 2012. It also reported falls in both supply and demand (new enquires and instructions). Transactions across the country were down 3.4% in September compared to September 2017. This followed an unusually strong August, but is in keeping with a three-year downward trend in activity. We expect transaction volumes to be reasonably stable over the next five years, assuming some clarity is reached around Brexit. When that clarity comes, it may generate a resurgence in demand and activity.
The current falls in activity reflect broader economic indicators. The GFK Consumer Sentiment Survey also fell in November, down to its lowest score of the year. One of its key metrics, the Major Purchase Index, dropped by the largest amount in 28 months. This widespread loss of confidence comes as the ongoing Brexit negotiations pass through a key period. The uncertainty has given rise to a wide range of scenarios for the future health of the economy being discussed. Additional pressure on home buyers comes from mortgage servicing costs, which have been rising steadily since March following the Bank of England base rate rise.