Croydon’s cash-strapped council looks to be getting out of the house-building racket at just the wrong time, as figures released this morning showed that the housing market has made its strongest start to the year since 2005, with annual house price growth rising to 11.2per cent.
The monthly house price index from Nationwide, the country’s biggest building society, said the average price of a home hit £255,556 in January, after the sixth consecutive monthly increase.
The annual growth rate accelerated 0.8 percentage points from 10.4per cent the previous month, reaching its highest level since June.
The figures show that the house price to average earnings ratio has reached an all-time high of 6.5 – meaning that the cost of the price of a home is 6.5 times an average person’s annual salary. Those figures are taken from national statistics, while the figures for London are usually much higher.
All indicators suggest that rising house prices are also having an impact on the costs of renting for tenants.
But analysts and economists are predicting a slow down in house price inflation over the course of 2022 as the cost of living and rising interest rates deter home-buyers.
The failings and failure of the council-owned Brick by Brick, which ultimately crashed Croydon Council’s finances in 2020, are made even more difficult to accept when the Nationwide and others in the property business, suggest that it is a lack of new housing that is the prime cause of the rise in prices.
“As ever, prices are also being propped up by a chronic lack of supply,” one City expert said today.
Graham Cox, the founder of the Self-Employed Mortgage Hub, feels that rises in the cost of living will be squeezing demand. “Overall, we’re noticing borrowers are turning cautious, fearful of the economic outlook,” he said.
“While there is a fundamental shortage of properties on the market, and housing supply generally, all the factors on the demand side are going in the wrong direction. National Insurance, energy bills, the cost of food, fuel and mortgages are all going up.
“There could be a rude awakening in 2022 for those who believe house prices can only ever go up.”
Other economic data released today showed that grocery inflation increased to 3.8per cent in the four weeks to January 23, with the cost of savoury snacks, crisps and beef rising the most.
According to the cost of living index compiled by Kantar, such price increases if taken over a 12-month period would add £180 to the average household’s annual grocery bill.
Government figures showed that overall consumer prices rose 5.4per cent in annual terms in December, the highest rate in almost 30 years, and there are expected to be further inflationary pressures coming down the line, particularly in April when the energy price cap ends.
For the time being, however, those selling properties have been able to command record prices. “Housing demand has remained robust,” Robert Gardner, Nationwide’s chief economist, said on the release of their monthly figures.
“Mortgage approvals for house purchase have continued to run slightly above pre-pandemic levels, despite the surge in activity in 2021 as a result of the stamp duty holiday, which encouraged buyers to bring forward their transactions to avoid additional tax.
“Indeed, the total number of property transactions in 2021 was the highest since 2007 and around 25per cent higher than in 2019, before the pandemic struck.
“At the same time, the stock of homes on estate agents’ books has remained extremely low, which is contributing to the continued robust pace of house price growth.”
Gardner agrees with the analysis that it is likely that the housing market will slow this year, simply because prices have now gone beyond what people are able to afford. “House price growth has outstripped earnings growth by a wide margin since the pandemic struck and, as a result, housing affordability has become less favourable.
“A 10per cent deposit on a typical first-time buyer home is now equivalent to 56per cent of total gross annual earnings, a record high. Similarly, a typical mortgage payment as a share of take-home pay is now above the long-run average, despite mortgage rates remaining close to all-time lows.
“Reduced affordability is likely to exert a dampening impact on market activity and house price growth, especially since household finances are also coming under pressure from sharp increases in the cost of living.
“Consumer price inflation reached 5.4per cent in December, its fastest pace since 1992. This is more than double the Bank of England’s 2per cent target and inflation is set to rise further in the coming months as the energy price cap is increased.
“This rapid rise in inflation has been an important factor denting consumer confidence in recent months, especially how people see their own personal financial situation evolving, although as yet, this has done little to dent housing market activity.”
And Gardner said that he expects the Bank of England to respond to rising inflation by increasing interest rates in the coming months, if not immediately at this Thursday’s meeting of the rate-setting committee.
“This will further reduce housing affordability,” Gardner said.
Those working in the estate agency sector shared that caution about rising house prices.
“Make no mistake, the housing market is booming and we’ve picked right back up from where we left off in 2021, with the strongest start to the year in almost two decades,” said Marc von Grundherr a director of north London estate agents Benham and Reeves.
“It’s hard to remember a time when such bullish market conditions were maintained for such a long period of time. However, with inflation starting to put pressure on household finances there is a chance we may soon see this relentless rate of house price appreciation start to slow.”
Von Grundherr predicts that the London market will, as usual, outperform the rest of the country. “We’ve seen a huge uplift in both tenant and homebuyer demand following the pandemic inspired exodus and many have now realised that London is where they want to be, not just where they need to be.”
He also relates the return of cash-rich property speculators from overseas. “This will help rejuvenate the London property market considerably,” he said, to the delight of no first-time buyers anywhere.
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