According to Hometrack, UK city house price inflation is registering at +1.7%. Seven cities are registering house price growth of less than +1% per annum. There is also a growing polarisation in market conditions across southern England and the rest of the country. Whilst prices in London are still falling annually, quarterly growth has improved.
Seven cities with annual growth less than +1%
UK city house price growth is running at +1.7% as the rate of price inflation continues to slow. Seven cities are registering house price growth of less than +1% per annum – the first time we have seen this since June 2013. All these cities are in the south of England except for Aberdeen where price growth is -3.2%. Edinburgh (+5.1%) is registering the highest growth, followed by Liverpool (+4.9%) and Cardiff (+4.7%).
Growing polarisation in underlying market conditions
There is a growing polarisation in market conditions across southern England and the rest of the country (Fig 1). Bristol has the highest annual growth rate in southern England at +2.0%. The remaining six cities are all registering growth of between -0.3% and +0.8% as affordability constraints impact demand, resulting in a lower rate of house price inflation.
Weaker demand means sales are not keeping pace with the new supply of homes for sale. Increases in supply are compounding the downward pressure on prices in southern cities. The opposite is true elsewhere.
Sales fail to keep pace with new supply in south
New supply has grown faster than sales in cities across southern England since 2016 - the start of the slowdown in price growth. Today there are 1.3 units of supply new to the market for every sale agreed. Before 2016 supply struggled to keep pace with sales with a ratio closer to 1 which created scarcity and a strong upward pressure on prices.
Market dynamics are stronger in northern cities
The dynamics in northern cities are different to the south of England with continued growth in sales eroding supply at an increasing rate, supporting above average price growth. While the trend in the ratio of sales to new supply has been downward over the last 5 years it has started to rise over 2019H1 as new supply comes to the market at a faster rate than sales.
Marc von Grundherr, director of Benham and Reeves, commented: “City living remains extremely desireable and therefore conditions in these property hotspots are far more stable than other areas of the market and continue to see prices climb as a result.
The cities to have benefited from larger levels of buyer demand in the past are, of course, going to take longer to recover as this heightened demand has pushed up prices and it makes sense that they are now seeing more stock then sales as buyers wait for a natural adjustment to occur.
It looks as if London is finally turning a corner where city house price growth is concerned with the previous price rot seen now in reverse. Home sellers in the capital have been waiting patiently for the tide to turn as a lack of market activity has seen sold prices tumble. However, as the scales of properties sold to new stock now start to tip in favour of the seller, we should see price growth start to accelerate.”
Shepherd Ncube, Founder and CEO of Springbok Properties, commented: “A bit of a mixed bag across the current market landscape but a positive one for the large part, with city house price growth continuing to shun wider market uncertainty to register yet more positive movement.
It’s promising to see such strength being registered across cities in the North, who have otherwise stood in the shadow of the capital for far too long.
These markets are enjoying much higher levels of buyer demand at present due to more realistic price expectations and the rate of new stock entering the market is failing to meet this appetite.
However, it is important that sellers remain realistic when pricing for the market because as we are seeing in Birmingham, a drastic period of over-performance won't last forever."
