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Households’ house price expectations reach new high

Households perceived that the value of their homes rose in October for the seventh consecutive month, according to the House Price Sentiment Index (HPSI) from Knight Frank and Markit Economics.

More than 23% of the 1,500 homeowners surveyed across the UK said that the value of their home had risen over the last month, up from 6.3% in October last year. Only 5% of households said the value of their home had fallen over the last month, giving a HPSI reading of 59.1.

Any figure under 50 indicates that prices are falling, and the lower the figure, the steeper the decline. Any figure over 50 indicates that prices are rising.

This is up from last month’s record reading of 57.9 and marks the highest reading since the index began in February 2009. This is the most sustained period of upward price movements in three years.

Households in all 11 regions reported that the value of their home had risen in October, with the index readings also reaching record highs in every region except the North East, the East Midlands, the East of England and Wales.

Since the inception of the HPSI, the index has been a clear lead indicator for house price trends. Figure 3 shows that the index moves ahead of mainstream house price indices, confirming the advantage of an opinion-based survey which provides a current view on household sentiment, rather than historic evidence from transactions or mortgage market evidence.

Outlook for house prices

The future HPSI, which measures what households think will happen to the value of their property over the next year, rose to a new high in October.

The overall index reading climbed to 71.1, up from 69.6, in September, and marking a new record high. On a smoother three-month average basis, the

future HPSI reading was 68.8, up from 68.2 in the previous three month period.

Regional outlook

Households in every region expect the value of their home to rise over the next 12 months, but the pace of growth differs markedly. Those in London (81.4) and the South East (76.7) lead the way, while households in the North East (59.0) and Wales (60.4) expect more modest increases in the value of their property.

Those aged over 55 (76.1) predict the sharpest rise in the value of their property, followed by those aged 35 to 44 (72.6). Those aged between 18 and 24 (64.8) also expect the value of the property in which they live to rise, but at a slower pace.

This ‘age-gap’ is also mirrored in earnings data, with the highest future HPSI reading for those earning more than £57,800 a year (80.6), which is also a record high.

Homeowners who have a mortgage loan, and those who own their home outright both expect the largest increase in property values, with future HPSI readings of 75.9 and 74.9 respectively.

Gráinne Gilmore, head of UK residential research at Knight Frank, said:

“The momentum in house price expectations gained over the past few months continued this month, with households across the country expecting the value of their home to rise over the next 12 months.

“This is the latest evidence of increased confidence in the market, which has been boosted by the Government’s Help to Buy mortgage guarantee scheme, introduced at the start of the month.

“The difference in the rate of growth expected in the regions is quite pronounced however, reflecting the localised nature of the housing market at present. Households in London and the South East expect the largest rise in prices over the next year, an indication of the strength of housing market in the Capital and in surrounding areas within easy commuting distance.”

Tim Moore, senior economist at Markit, said:

“October’s survey is the first taken since the Government brought forward the second phase of its Help to Buy scheme and, while the jump in price perceptions since September was relatively muted, the overall level of confidence about house price gains remains at unprecedented levels in the survey history.

“Looking ahead, only one-in-fourteen households forecast a decline in their property value over the next 12 months. In London, the number of respondents expecting a price fall between now and October 2014 stands at around one-in-thirty households, and across the wider South East this proportion has reached just one-in-twenty.”

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