Housing market caution continues despite strength in consumer finances
House prices fell by a marginal 0.1% in February, according to Nationwide, leaving them 0.4% above where they were this time last year. Our forecasts expect an average 1.5% growth in UK house prices in 2019, with the bulk of that growth likely coming in the second half of the year, assuming a Brexit deal is agreed. The lack of clarity around Brexit has subdued the housing market in recent months. At the time of writing, “Brexit day” is still scheduled to be 29th March, but Oxford Economics are predicting the most likely eventual outcome to be a deal with an extension of Article 50.
This Brexit-related uncertainty is reflected in the RICS survey, which continues to show sustained falls in new enquiries and instructions. Enquiries are now at their lowest level since 2008. Instructions have not fallen quite as far but are still in negative territory. Transaction numbers have fallen as a result, with UK transactions 4% lower in December than they were the previous year. London has fallen the most, down 8.5% during the year, while Yorkshire & the Humber fared the best, only falling 2.3% over the same period. Lifting the Brexit uncertainty may boost activity.
By contrast, the outlook for consumers has strengthened, with annual wage growth now at its highest since 2008, at 3.4% according to the ONS. With falling inflation, this gives a boost to spending power for many households. Employment is also up, currently at an all-time high of 76%. But this strength is yet to be fully reflected in the GfK consumer sentiment survey, which did rise by one point in February, but still sits firmly in negative territory, suggesting that caution in the housing market reflects broader consumer caution pending clarity over Brexit terms.