UK house prices see strongest growth in two years

In November, the UK housing market experienced a notable uptick, with house prices rising by 1.2% compared to the previous month, Nationwide's House Price Index showed. This surge has led to an annual growth rate of 3.7%, up from 2.4% in October, marking the fastest year-on-year increase since November 2022. The current house prices are now just 1% shy of the all-time peak reached in the summer of 2022.

Robert Gardner, Nationwide's Chief Economist, highlighted the unexpected acceleration in house price growth, considering the stretched affordability when compared to historical standards. He pointed out that house prices are high relative to average incomes, and interest rates remain elevated above pre-pandemic levels.

Gardner noted that the robust monthly increase, the largest since March 2022, did not appear to be influenced by the anticipated changes in stamp duty, as the majority of mortgage applications were initiated prior to the Budget announcement. Instead, the resilience of the housing market could be attributed to the relatively strong number of mortgage approvals, which are nearing pre-pandemic figures, despite the higher interest rates.

Supporting the housing market's momentum, Gardner cited solid labor market conditions, low unemployment rates, and substantial income gains, even after accounting for inflation. He also mentioned that household balance sheets are in a healthy state, with debt levels at their lowest in relation to household income since the mid-2000s.

Looking ahead, Gardner suggested that the upcoming stamp duty changes might complicate assessments of the market's true strength. He anticipates an increase in transactions in the first quarter of 2025, particularly in March, followed by a potential slowdown in the subsequent months, similar to patterns observed after previous tax adjustments. This could temporarily alter the demand-supply balance and affect price movements.

Gardner concluded with a cautiously optimistic outlook, suggesting that if the economy continues its steady recovery, the underlying pace of housing market activity could gradually strengthen. This would be supported by an easing of affordability constraints through a combination of modestly lower interest rates and earnings growth that outpaces house price increases.

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Source: Investing.com