Over the last few years, house buyers and property professionals have become more than used to sharp rises in house prices month on month on month.
But things have certainly changed of late. Interest rate rises, high inflation, increasing costs of living and last autumn’s very unconventional political happenings surely must have started to impact the market by now.
Logically, most people would probably be expecting property prices to be on a downward trajectory at this point.
As of this week, however, property prices still seem to be rising – and by a substantial amount according to at least one index. In this post we’ll consider why that might be.
First of all let’s look at the statistics: The latest UK House Price Index published this week by HM Land Registry says that the current average price of a property is now £294,910. This represents a 10.3% rise in prices over the year.
So house prices are certainly still rising and at a pretty substantial rate based on this index.
It’s worth drilling down into the statistics a little however. Over the last month average prices actually fell by 0.3%. Not much perhaps, but down from a 1.5% monthly rise a year ago.
The rate of price rises also varies regionally. Most regions of the UK saw annual price rises of 10% or more over the last year. But London only saw a more modest 6.3% annual rise. And London is by far the biggest region for sales volume and for price levels too. (PS. Scotland prices only rose 5.5%.)
Other popular house price indices do not record such a high growth in prices, but they still show prices have kept going up.
The latest (December) Nationwide House Price Index says prices rose 2.8% over the last year, down from over 10% annually a year ago.
The latest (December) Halifax House Price Index says that house prices rose 2% over the last year.
(Both these indices are based on mortgage transactions adjusted in a specific way rather than actual completed sale prices as with the UK House Price Index.)
So why might this be the case? Why do property prices still seem to be defying all the odds?
It’s worth pointing out that with most house price statistics there is a time delay, perhaps quite considerable. The latest HM Land Registry figures are based on completions in November for example. Many of those sales will have been agreed in better times over the summer, or even in the spring.
The headline figures are also averages. Sharp rises in some areas and for some types of property can easily mask falls in others. At least two of the indices suggest prices for detached houses have risen much more sharply than for flats, for example.
So there are certainly statistical reasons at play. But what could be some of the other reasons that house prices are still rising, when so much suggests they shouldn’t be?
Mortgage money is still fairly cheap, historically speaking.
Many people can still afford to buy. Even if buying isn’t as affordable as it was. Unemployment does not seem to be a factor as in previous times when the economy was struggling.
Significant numbers of people still have to or need to move. In fact, the UK House Price Index says that the numbers of transactions actually increased by 13.3% over the last year.
The Help to Buy scheme, which has been responsible for many transactions in recent years, was still in operation when these statistics were compiled.
There is still a shortage of homes in many if not most parts of the country. There’s still a sense of urgency amongst many home buyers.
Home ownership is still an aspiration. It remains something that people are prepared to make sacrifices and take risks for.
Sentiment in the property market is still pretty strong. Many people still feel that if they buy now they are unlikely to lose money in the long run and buying property is still a risk worth taking. Most experts, while predicting price falls this year and next, suggest they will be rising again in 2025.
At the end of the day, however, while it is interesting to look at the statistics maybe it is impossible to explain why property prices are still rising. There are so many different factors at play. The property market was, is and probably always will be very unpredictable and very difficult to call. Maybe it is just better to accept that it doesn’t just defy gravity but that it also defies logic too.
