UK house prices unexpectedly drop in January - Halifax
House prices in the UK unexpectedly declined in January, according to the latest data from lender Halifax.
House prices were down 0.6% on the month following a 0.8% drop in December, missing expectations for a 0.2% increase.
Meanwhile, prices in the three months to January were up 2.2% compared to the same three months a year ago, slowing down from a 2.7% rise in December and marking the slowest rate since July last year. Economists had been expecting a 2.4% increase.
Russell Galley, managing director at Halifax Community Bank, said: "We've seen a monthly decline as well as the quarterly rate of growth flattening out. Although employment levels grew by 102,000 in the three months to November, household finances are still under pressure as consumer prices continue to grow faster than wages. Additionally, it’s still too early to see any impact for first-time buyers from the abolition of stamp duty on purchases of up to £300,000, which was announced in the November Budget.
"Despite the recent rise in the Bank of England Base Rate, mortgage rates are still very low. This, combined with an ongoing acute shortage of properties for sale, will continue to underpin house prices over the coming months."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the drop highlights the fact that the Monetary Policy Committee can't hike rates quickly.
"Halifax’s measure of house prices has declined by 1.4% in the two months following the MPC’s November rate hike, underlining that the Committee has to stick to its commitment to raise rates only gradually in order to avoid a downturn in households’ spending. Admittedly, Nationwide’s similar index has increased by 1.2% over the last two months, so Halifax’s data might be misleading.
"Nonetheless, Halifax’s data chimes with recent RICS surveys, showing buyer demand falling at a faster rate than supply, and the collapse in mortgage approvals in December. House prices likely will remain weak in the first half of 2018, given that both the recent rise in bond yields and the imminent winding-up of the Term Funding Scheme suggest that mortgage rates will rise further."
Jeremy Leaf, a north London estate agent and former RICS residential chairman, said: "In December, Halifax reported the lowest annual rise in house prices since 2012 and the first monthly fall for six months so today’s figures reflect confirmation of this trend.
"However, the Halifax numbers are a little historic. At the sharp end of the market, we’ve noticed better-than-expected viewings but won’t know whether this interest will translate into confirmed sales for the next few weeks at least. Prospective purchasers seem to be taking confidence from recent encouraging news about the economy and continuing low interest rates.
"Once again the market is showing considerable resilience and little sign of a larger correction. Nevertheless, sellers still have to be realistic and particularly recognise the importance of setting sensible asking prices if they are to generate offers."
Howard Archer, chief economic advisor to the EY Item Club, maintained his view that house prices will rise a modest 2% in 2018.
"The fundamentals for house buyers are likely to remain challenging. The squeeze on consumers’ purchasing power remained significant going into 2018, and it is likely to only gradually ease as the year progresses. Additionally, housing market activity is likely to be hampered by fragile consumer confidence and a limited willingness to engage in major transactions.
“House buyers will also likely be concerned about further interest rate hikes in 2018 following November’s first tightening of monetary policy by the Bank of England since 2007. While the increase in interest rates was just 0.25% and mortgage rates are still at historically very low levels, there does appear to have been some impact on house buyers’ psychology. We now expect the Bank of England to raise interest rates twice in 2018 (each time by 0.25%), with the next move likely in May.
“Housing market activity and prices are also likely to be impacted by stretched house prices to earnings ratios and tight checking of prospective mortgage borrowers by lenders."