Housing market off to best start to year since 2005

The housing market had its best start to a year since 2005, according to an index.

Annual house price growth fell to 11.2% in January 2022 from 10.4% in December 2021, the Nationwide Building Society said.

But he said the real estate market is likely to slow this year.

Reduced housing affordability is likely to dampen market activity and house price growth, as household budgets are also squeezed by the wider rise in the cost of living, he warned. .

Robert Gardner, Nationwide’s chief economist, said: “Annual house price growth accelerated to 11.2% in January, the fastest pace since June last year and the best start to a year for 17 years.

“Prices rose 0.8% month-on-month, after adjusting for seasonal effects, the sixth consecutive monthly increase.”

In the UK, the average house price in January was £255,556.

Mr Gardner added: “While the outlook remains uncertain, the housing market is likely to slow this year.

“House price growth has significantly outpaced earnings growth since the start of the pandemic and as a result housing affordability has become less favourable.

“For example, a 10% down payment on a typical home for a first-time buyer now equals 56% of total gross annual income, a record high.

“Similarly, a typical mortgage payment as a share of take-home pay is now above the long-term average, despite mortgage rates remaining near historic lows.

“Reduced affordability is likely to have a dampening effect on market activity and house price growth, especially as household finances are also under pressure due to sharp increases in the cost of life.

“Consumer price inflation hit 5.4% in December, its fastest pace since 1992.

“This is more than double the Bank of England’s 2% target, and inflation is expected to rise further in the coming months as the ceiling on energy prices is raised.

“This rapid rise in inflation has been a significant factor that has undermined consumer confidence over the past few months, particularly how people view their own financial situation, although so far it hasn’t. did little to harm housing market activity.

“High inflation and growing confidence that the Omicron variant will not derail the broader economic recovery have led to heightened expectations that policymakers will raise interest rates further in the months ahead.

“This will further reduce housing affordability if it results in higher mortgage rates, although to date a significant proportion of the rise in long-term interest rates seen in recent months has been absorbed by lenders.”

Martin Beck, chief economic adviser at EY Item Club, said: “A robust start to the year for house price growth is unlikely to give a taste of things to come.

“In particular, the stamp duty exemption, which supported housing demand and prices last year, is now a thing of the past. To the extent that the tax holiday anticipated purchases, its impact could weigh on housing market activity in the near term.

“Meanwhile, the prospect of a series of interest rate hikes by the Bank of England in 2022, starting with a hike expected at this week’s meeting, will result in higher mortgage rates.

“And the cost of living pressures facing households from rising inflation and higher taxes mean that fewer people will be able to afford to borrow the amount needed to buy at higher mortgage rates.”

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said house prices could rise if households were willing to deploy the excess savings they accumulated during the pandemic.

She added: “But house price growth has struggled during periods of high inflation, due to the resulting impact on real incomes. Indeed, we expect real household disposable income to decline by around 1.5% this year due to soaring inflation and rising taxes.

Mark Harris, managing director of mortgage brokerage SPF Private Clients, said: “Even though mortgage rates are rising, they are still competitively priced, which should give buyers the confidence to take the plunge, even in the face of a downturn. higher cost of living.

Lucy Pendleton, of estate agent James Pendleton, said: ‘As supply improves it will have a sobering effect on prices.’

Nicky Stevenson, chief executive of estate agent group Fine & Country, said: “While monetary policy will tighten in 2022, this is unlikely to have a significant dampening effect on the housing market anytime soon, most agents across the country still unable to find enough accommodation to meet demand.

Tom Bill, head of UK residential research at Knight Frank, said: “The high level of market valuations demanded by potential sellers in January indicates that supply will increase as more owners decide now is the time to act.

“A number of potential sellers had been hesitant due to the distorting effect of a stamp duty holiday and a global pandemic.”

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