UK house prices grew more than expected in February, according to the latest data from lender Halifax.
Annual house prices rose 2.8% in the three months to February, up from the 0.8% increase seen in January and beating expectations for a 1% jump.
On the month, house prices were up 5.9%, which was well above the 0.1% increase analysts had pencilled in. In the latest quarter, meanwhile, prices were 1.8% higher.
Halifax managing director Russell Galley said the shortage of houses for sale will certainly be playing a role in supporting prices.
“People are still facing challenges in raising a deposit which means we continue to expect subdued price growth for the time being. However, the number of sales in January was right on the five year average and, at over 100,000 for the fifth consecutive month, the overall resilience of the market is still evident.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that right now, he has little confidence in Halifax’s index as a reliable indicator of the housing market.
“Its extreme volatility – February’s gigantic increase follows a 3.0% month-to-month decline in January – undermines its validity. Like others, the index is seasonally adjusted, but it uses an outdated methodology which potentially is contributing to its excessive volatility.
“All other indicators suggest that house prices essentially are on a flat trend, not rising at the 1.8% three-month on three-month rate reported by Halifax. The support to house prices from the combination of faster growth in nominal wages and extremely low unemployment is being offset, for now, by anxiety about Brexit.
“The housing market likely will revive for a short period if, as we still expect, MPs sign off a Brexit deal by the summer. But a Brexit deal also will give the green light to the MPC to push through further increases in Bank Rate. With loan-to-income ratios at a record high, even modest increases in mortgage rates will greatly dampen house price growth. As a result, we still expect the official measure of house prices to rise by just 1.5% over the course of 2019.”
Howard Archer, chief economic advisor to the EY ITEM Club, agreed that Halifax house price measure’s monthly movements have been out of kilter with other measures.
Nationwide estimated annual house price inflation at just 0.4% in February and while the Bank of England reporting that mortgage approvals rose to a three-month high in January, most data and surveys point to a weak housing market.
“February’s spike in house prices reported by the Halifax does not fundamentally change our view of the housing market,” Archer said. “If the UK ultimately manages to leave the EU with a “deal” at the end of March, we expect UK house prices to eke out a modest gain of 1.5% over 2019.
“If the UK leaves the EU at the end of March without a Brexit “deal”, house prices could fall by around 5% in 2019.
“If Brexit is delayed for a few months, ongoing uncertainty is likely to weigh down on the housing market and could very well see house prices stagnate over 2019 or even fall slightly.”
By Iain Gilbert