House prices continue to increase more quickly than average earnings

House prices in the latest three months (February-April) were 2.2% higher than in the preceding three months (November 2014-January 2015) according to the latest Halifax House Price Index April 2015.

The quarterly rate of change decreased for the first time this year following three consecutive rises and compares with 2.6% last month.

Prices in the three months to April were 8.5% higher than in the same three months a year earlier. This was slightly higher than March’s 8.1% but kept the annual rate within the narrow range of 8-9% where it has been throughout the past seven months with the exception of December (7.8%). The annual rate remains below the recent peak of 10.2% in July 2014.

House prices increased by 1.6% between March and April.

Home sales in the UK remained at 101,000 in March. Sales were also static between the final three months of 2014 and the first quarter of 2015, but were 6% lower than in the first three months of 2014. (Source: HMRC, seasonally-adjusted figures)

The volume of mortgage approvals for house purchases – a leading indicator of completed house sales – fell slightly in March following three consecutive rises. Nonetheless, approvals during the first quarter of 2015 were 2.8% higher than in the final quarter of 2014. (Source: Bank of England, seasonally-adjusted figures)

New instructions fell in March continuing the recent downward trend with declines in seven of the past eight months. This fall in instructions has contributed to the supply of homes on the market remaining low. (Source: Royal Institution of Chartered Surveyors’ (RICS) monthly report)

Consumer confidence in the outlook for the housing market has rebounded to its highest level since July last year, according to the latest quarterly Halifax Housing Market Confidence Tracker as measured by Ipsos MORI. In addition, the latest Tracker found that a net +331 of consumers think the next 12 months will be a good time to sell, compared to +24 at end of December 2014. This is the highest score on this measure since the survey’s inception in April 2011. At the same time, the proportion who believes it is now a good time to buy fell from +26 at end of December 2014 to +21 as at end of March 2015.

The fifth annual Halifax Generation Rent Report finds relatively little improvement in how potential first-time buyers view their chances of getting on the housing ladder. The proportion of people saving for a deposit has dropped six percentage points over the past year. 43% are currently saving to buy a property compared to 57% who are not. This strengthens the view that more people may be giving up on owning their own home.

Commenting, Martin Ellis, housing economist, said:

“House prices in the three months to April were 2.2% higher than in the preceding three months. This measure of the underlying rate of house price growth fell for the first time in 2015 following three successive rises. In contrast, annual house price growth increased slightly, from 8.1% in March to 8.5%. Nonetheless, the annual rate remains in the narrow range of 8-9% where it has been since the start of 2015 and is below last July’s peak of 10.2%.

“Housing demand is being supported by a number of factors including economic improvement, rising employment and low mortgage rates. At the same time, supply remains very tight with a general shortage of properties available for sale. This combination has kept house price inflation steady in recent months with prices increasing by 2.2-2.6% on a quarterly basis and at an annual rate of 8-9%.

“House prices are continuing to increase more quickly than average earnings despite the return to real earnings growth over the past few months. The resulting rise in the level of house prices in relation to earnings should constrain house price growth and activity over the remainder of the year. The annual rate of house price growth is forecast to end the year at 3-5%.”

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