07 Aug 2024 | EY ITEM Club comments | Media contact: James White - Senior Executive, Media Relations, Ernst & Young LLP
Halifax reports surprise increase in house prices in July
- The EY ITEM Club is approaching July’s rise in house prices on the Halifax measure with a degree of caution. This data can be prone to volatility, particularly in the quieter months of summer. And today’s data only took prices back to the level they were in February.
- Though mortgage affordability is better than last summer, it remains very stretched, which is limiting the pool of potential buyers. The EY ITEM Club expects to see a period of relative stability for activity and prices until this valuation gap closes.
Peter Arnold, EY UK Chief Economist, said: “The Halifax measure of house prices rose by 0.8% month-on-month in July, after prices were flat in the previous three months. But the lenders’ series are prone to volatility, particularly in the summer when activity tends to be lower, so the EY ITEM Club is approaching today’s data with a degree of caution.
“Indeed, July’s increase only took prices back to where they were in February. Stepping back and looking at the bigger picture, the market has been fairly flat so far this year in terms of both prices and transactions, and the EY ITEM Club thinks these conditions are likely to persist.
“Mortgage rates remain well below the levels seen in both late-2022 and last summer. This, combined with strong growth in nominal wages, has reduced the scale of the mortgage affordability challenge, which has helped to entice some buyers back to the market.
“But while mortgage affordability is much better than it was last summer, it remains stretched relative to historical norms. And though financial market pricing has moved a little in response to last week’s interest rate cut from the Bank of England, the adjustment implies only a modest fall in quoted interest rates for fixed rate mortgages, indicating that mortgage affordability will likely remain stretched. Other affordability metrics, such as loan-to-income and loan-to-value ratios, also remain high. This is preventing many people from being able to access mortgage finance and limiting the pool of potential buyers.
“The EY ITEM Club thinks the most likely scenario is that this period of relative stability in activity and prices continues in the near-term, at least until the valuation gap closes. This would be consistent with the post-Global Financial Crisis experience, where prices were broadly flat for three years before a recovery took hold.”