Transaction volumes have stabilised, but house price growth has slowed
House prices dropped 0.7% in December, the largest monthly fall since 2011, according to Nationwide. That surprisingly weak performance coincided with raised political uncertainty leaving annual house price growth at 0.5% for 2018, marginally undershooting our forecast of 1.0%. Annual growth varied across the regions: it was strongest in the East Midlands at 4.0%, followed by Wales at 3.9% and Yorkshire & the Humber at 3.7%. After a long period of outperformance that has left affordability constrained, London has fared the worst, with values down 2.2% since the start of the year. Wales was the strongest performer in Q4, whilst the East and West Midlands slowed. This is in line with our forecast that house price growth in Wales and the North will overtake the Midlands over the next two years.
Although house price growth was weaker than expected at the end of 2018, transaction volumes appear to have stabilised across all regions in October. That stability continued into November at a national level, according to data from HMRC. But new instructions and enquiries both continued to fall in December, according to the RICS survey. They reached their lowest levels since the immediate aftermath of the Brexit vote.
Brexit is the most cited cause (according to the RICS survey) for reduced activity, and housing market uncertainty is likely continue until some clarity emerges. This could come with the result of the parliamentary vote on Theresa May’s deal on 15th January. But if Parliament votes against her deal, we will need to wait until the end of the month for Parliament to present an alternative. Any deal agreed by Parliament will also need to be ratified by the EU before ‘Brexit Day’ on 29th March.