House prices held in a supply/demand headlock

All the major house price indices agree on two main things: firstly, London has stalled after the stupendous price growth of recent years, and secondly, the sheer lack of supply means prices can only fall so far.

Lordy lord. We’re a little more bored than usual here at Dashly HQ with the same old house price indices (HPIs) that emerge, with a frightening military precision, on the same days of the month. Whether it’s the Halifax, Nationwide, RICS or ONS, for the best part of 2017 the major HPIs have all been saying much the same thing. Or at least two things.

Cooldown in the capital

The first thing that all the HPIs agree on is that prices in London have come off the boil a lot more than in other parts of the country over the past 12-18 months. This, of course, is no surprise given the K2-type heights prices were hovering at in the capital two or three years back. Nothing it seems, not even London’s crazily sought-after property market, can survive in the death zone too long.

According to the ONS HPI published in mid-November, London values have grown by just 2.5% over the past year, compared to 5.4% for the UK as a whole. By contrast, the North West of England has seen the strongest price growth, registering 7.3% growth over the year.

Somewhere in between you have the South West, showing growth of 6.6% over the past 12 months, the East Midlands, 6.4% and the North East 4.4%. Compared to these regions, London is stuck in first gear, and has been for quite some time. It’s hard to see things improving in the capital next year, either. Slow and steady is as exciting as it’s likely to get.

Weak supply saves the day

The second thing all the HPIs have been saying is that house prices are being supported by weak supply. While demand is hardly rampant, as high inflation and debt levels bite and many people sit on their hands amid all the Brexit uncertainty, prices have not fallen for the simple reason that there are very few homes on the market.

The supply problem is more fundamental, of course, than the fact that people are not putting their homes up for sale (in many cases because they know it’s a buyer’s market and they may not get what they want). It’s also being driven by the fact we are building too few houses in general - a narrative that has gone on for as many years as it looks set to continue.

No boom, but no bust, either

Now at Dashly, we’re not inclined to pontificate on the direction of house prices, and where we think they will be this time next year, but it’s hard to imagine them falling in any material way given the entrenched lack of supply.

The property market might not be booming, but the sheer lack of bricks and mortar up for sale and being built, and the structural lack of space in which to build homes, means it’s highly unlikely to go bust, either. In that regard the immortal words of Mark Twain still ring true: “Buy land, they’re not making it any more.”

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