07 June 2017

Annual house price growth slowest in nearly four years

  • House prices show third consecutive monthly decline for the first time since 2009
  • Annual house price growth dips to 2.1%, providing further evidence that the housing market is losing momentum.

House prices recorded their third consecutive monthly fall in May – the first time this has occurred since 2009. The annual rate of growth slowed to 2.1%, the weakest in almost four years.

It is still early days, but this provides further evidence that the housing market is losing momentum. Moreover, this may be indicative of a wider slowdown in the household sector, though data continues to send mixed signals in this regard.

While real incomes are again coming under pressure as inflation has overtaken wage growth, the number of people in work has continued to rise at a healthy pace. Indeed, the unemployment rate fell to a 42-year low in the three months to March.

If history is any guide, the slowdown is unlikely to be linked to election-related uncertainty. Housing market trends have not traditionally been impacted around the time of general elections. Rightly or wrongly, for most home buyers, elections are not foremost in their minds while buying or selling their home.

Will the election impact the housing market?

With the UK general election taking place on the 8th June 2017, we've analysed house price movements in the months around previous elections, and also last year’s EU referendum. 

As the chart below illustrates, past general elections do not appear to have generated volatility in house prices or resulted in a significant change in house price trends. In the chart below we have indexed average house prices so they equal 100 in the election month in each of the years shown. We can then compare house price movements in the months leading up to each election (t-6 to t-1) and following each vote (t+1 to t+6).

house prices graph

On the whole, prevailing trends have been maintained just before, during and after UK general elections. Broader economic trends appear to dominate any immediate election-related impacts.

We also examined how activity, in particular house purchase mortgage approvals, responded to past UK general elections (see chart below). Here the picture is less clear, but again there does not seem to be any clear impact in the three months either side of a general election.

approvals graph

While activity slowed in the period immediately following the EU referendum, this was a continuation of a trend that was driven by the introduction of additional stamp duty on second homes earlier in the year.

Where next?

It is too early to conclude whether the slowdown in house price growth is merely a blip, a reflection of the impact of the squeeze on household budgets, or is due to mounting affordability pressures in key areas of the country.

Given the ongoing uncertainties around the UK’s future trading arrangements and the upcoming election, the economic outlook is unusually uncertain, and housing market trends will depend crucially on developments in the wider economy.

Nevertheless, in our view, household spending is likely to slow in the quarters ahead, along with the wider economy, as rising inflation increases the squeeze on household budgets. This, together with mounting housing affordability pressures, is likely to exert a drag on activity and house price growth in the quarters ahead.

However, the subdued level of building activity and the shortage of properties on the market are likely to provide support for prices. As a result, we continue to believe that a small increase in house prices of around 2% is likely over the course of 2017 as a whole.

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About the author

Robert Gardner

Robert Gardner is Nationwide’s Chief Economist, leading a team which provides economic analysis and advice, focused on developments in the UK economy, with particular emphasis on the housing market and house prices.

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