UK house prices drop month-to-month as Brexit concerns linger
House prices subsided for a second month in September and while homes are worth more than a year ago, the rate of increase declined.
For the three months ended 30 September, Halifax's measure of residential prices was 1.8% higher than the preceding three months, but for September alone house prices fell 1.4% month-to-month, well below consensus estimates of 0.2%.
August was also revised down to 0.2% dip, from the previous 0.1% gain, dropping the three-month average of year-over-year growth in prices to 2.5%, from 3.7% - again, below consensus estimates of 3.4%.
The annual rate of increase eased to 2.5% in the three months to September from the 3.7% rate of growth in the three months to August, which had been the highest since last November.
Halifax house prices have tended to show more volatile house price movements in house prices in recent months than other measures, economists pointed out.
Mortgage approvals showed a small rise throughout August, with Bank of England industry-wide figures showing that the number of mortgages approved to finance house purchases – a leading indicator of completed house sales rose to 66,440 in August from the 65,156 recorded in July.
Halifax noted that this figure was very close to the five-year average approval rate of 66,550, but was still more than 2,000 above the monthly average for 2017 of 64,638.
On a monthly basis, homes sales rose between July and August to 99,120, while in the three months to August, sales increased 1.2%.
Seasonally adjusted figures from the HMRC indicated that the volume of residential transactions had been broadly flat over the past year, a trend that Halifax saw as likely continuing over the coming months.
Halifax's managing director Russell Galley said: "With the annual rate of house price growth easing to 2.5% in September from 3.7% in August and the quarterly rate of growth remaining at 1.8% for the second month, we are seeing a steadying in house price inflation across these more stable measures."
"This is set amongst mortgage approvals and completed house sales remaining broadly unchanged, although a gradual pickup in wage growth has helped to support household finances."
The bank expects a low supply of new homes and existing properties on the market, combined with historically low mortgage rates and a high employment rate, to continue to support house prices in the immediate future.
Although housing market activity has come off this year's lows, economist Howard Archer at the EY Item Club said it was "hardly racing ahead and we suspect the upside will remain limited over the coming months", with the overall national picture dragged down by the poor performance in London and parts of the South East.
"Consequently, we expect house price gains over 2018 will be limited to around 2.5%. We expect a similar rise (around 2.5%) in 2019," he added, with activity likely to be constrained as limited consumer purchasing power only gradually improves, consumer confidence is fragile and appreciable caution persists over engaging in major transactions, possibly magnified by current heightened uncertainties over Brexit and further interest rate hikes over the medium term.
Sam Tombs at Pantheon Macroeconomics noted that the sharp fall in Halifax’s measure of house prices in September brings it in line with other, less volatile indicators.
"Halifax’s data is very noisy, so we doubt September’s data signal that the MPC’s increase in Bank Rate in August has pushed the housing market over the edge. Nonetheless, few households think that housing is a good investment at present," he said, noting that the recent increase in swap rates will filter through to mortgage rates soon.
"With loan-to-income ratios at a record-high, modest increases in mortgage rates have a big impact on affordability. Admittedly, households can offset the impact of rising mortgage rates on monthly repayments by taking out longer maturity loans, while payments as a share of disposable incomes still are low by past standards. As a result, sustained falls in house prices at a national level aren’t likely. Even so, the combination of rising mortgage rates and heightened economic uncertainty will weigh on demand over the next six months, ensuring that year-over-year growth in house prices barely exceeds zero."