David Newnes, director of Reeds Rains and Your Move estate agents, comments:
“This increased level of house sale completions marks a considerable – though laborious – reflection of the increased buyer activity earlier in the year since the recession zapped the energy from the market. October saw the highest level of house sales completed in a month since November 2007. In part this was driven by a better throughput of sales that had sat in the pipeline for some time, finally coming through to completion.
On a monthly basis, house price inflation has edged up from just a 0.3% increase in September, as we see some modest growth. Recent hiccups in the market have not shaken the overall underlying stability and the average UK homeowner has seen the value of their property rise £26,500 (or 10.5%) in the past year. Average house prices across England and Wales have reached a new record for the sixteenth successive month.
Not only this, but activity is starting to shift towards areas where the recovery still requires support and attention. The biggest uplift in completions in Q3 2014 compared to Q3 2013 has been witnessed outside of London – completed house sales in both the West Midlands and East Midlands have risen 22%, while in London house sale completions are up by just 3% over the same period. In regions such as the North and East Anglia, which saw average house prices slump during September, further growth in activity is critical to warm up the local recovery. First-time buyers in particular need shielding from any future cooling interventions from the government or Bank of England.
Zooming in on the regional footprints unearths a more complex path of growth. Only three regions saw house prices set peak highs. These were the South West, South East, and London – as the recovery continues to advance with a Southern-leaning slant. If we omit London and the South East from our calculations, a milder 5% annual change in property prices emerges.
Yet at the very top end of the housing market in Prime Central areas of London, growth is subsiding. Average house prices across London overall rose by only 0.4% in September – the smallest monthly increase the capital has seen for 15 months as the pace of price inflation cools down from the summer heat. Property prices have dropped in 6 out of the 7 most expensive boroughs over the course of the last month, in exclusive sought-after enclaves such as Westminster, Richmond and Camden. But just as London bucks the country-wide trend, the city does not behave as one uniform entity. In lower-priced boroughs such as Lewisham and Haringey, prices have continued orderly progress in October.”
Dr Peter Williams, housing market specialist and Chairman of Acadata, comments:
In October, the average price paid for a home in England & Wales was £277,390. This was an increase of £2,026, or 0.7%, over the previous month. It sets another new peak average price for England & Wales, and for the sixteenth month in succession. It also represents an increase in the monthly rate of house price inflation, up from the 0.3% increase in September.
On an annual basis, average house prices in England & Wales have risen by £26,500, or 10.5%, since October 2013. This represents an increase of 0.1% from the 10.4% recorded last month, partially offsetting the decline of the 0.3% September figure. This modest acceleration in prices is perhaps perplexing, as most commentators have been predicting a slowing down of house price inflation in the current market.
The average price of a home in England & Wales continues to be skewed by house prices in Greater London and the south east of England.The annual rate of house price inflation falls to 7.4% if Greater London is excluded, and to 5.0% if we exclude both Greater London and the South East. However, all of the annual inflation figures that we quote here have shown an increase of 0.1% over last month.
There has been a reduction in the rate of price growth at the top end of the market, with prices having fallen during the month in 6 of the top 7 boroughs ranked by price. The fall in prices in these boroughs has received considerable attention in the press. However, whilst prices in the prime central London locations have fallen, there have been continuing price rises during the month in a number of the lower-priced boroughs. If we look at the top third of London boroughs ranked by average house price, the monthly rate of increase was 0.5%, compared to a 1.5% increase in prices seen in the bottom third of London boroughs ranked by price.
The interesting question is whether prime central London is leading the way in the housing market, with the rest of the country to follow over the next few months, or whether prime central London is a law unto itself, and is an irrelevance as far as the rest of England and Wales is concerned? The answer to this question is likely to have considerable political significance, especially with a General Election only some six months away.
Many have argued that London is a self contained market fuelled by wealthy investors and residents from outside the UK, and clearly that is partly true. Their actions are conditioned by a range of factors both within the UK and beyond. London property offers both a safe investment, as well as residence in a stable economy, along with a strong likelihood of good capital returns. Such purchasers are part of this market, but not all of it, as is evident from reports produced by the major London agents. Alongside them is a wealthy UK elite: however, there is also some displaced demand, with relatively well-off UK households choosing to buy bigger homes in less exclusive areas, no doubt taking advantage of London’s improving transport system.
Research on Sydney, Australia has shown that while all suburbs were part of a connected city-wide housing market in the 1970s, this connectivity has broken down in recent years as a consequence of differential price movements, and the growing intergenerational differences in buying capacity. The upshot now is that some markets in Sydney are effectively separate, and with relatively few properties turning over on an annual basis, the demand from a wealthy elite is enough to keep that market in existence with prices reflecting the unmet demand to live there.
The strong demand for prime London areas does boost prices, and in the context of house price indices also the averages. This is why at Acadata we vary the basis for our index by excluding the purchase of extremely high value homes. Although in some senses parts of London are detached from what most would see as the real market, the reality is that they are connected both via displacement and by market pricing processes. The emergence of taxation regimes focussed on elite markets is one way of perhaps diminishing their effect on the wider market, but this remains to be seen. Moreover, there is a clear tension between an open and free housing market with significant foreign investment and the wider agenda of economic growth. Curbing one could impact upon the other, though of course there are arguments about the degree to which such taxes really deter wealthy foreign property investors.
Parts of the London market are clearly performing quite differently from others, so any generalisations about London as a whole are misplaced. The reality is that London is a market of many parts, which themselves are a small part of the total. The evidence of movement out of London resulting from the strong price performance of London boroughs compared to other parts of England & Wales is also strong. Households do cash in on their London homes and move to well-located home counties markets, possibly alongside the retention of a small flat in inner London, though some households simply accept longer commutes.
The strong demand for London overall, and the continued shortage of homes in the capital, has been an ever-present problem over recent years, though we should not forget that for a while the population was falling. Household fragmentation, increased immigration and natural growth has reversed this, hence the priority now being given to the London housing plan which aims to increase supply in the capital, and rely less strongly on displacement to surrounding counties. This will remain a challenging task.
