The Office for National Statistics (ONS) has released House Price Index data for July 2021. Data shows average UK house prices have risen by Â£ 19,000 compared to the same period last year, an increase of 8%. While this may seem like a positive headline, it is lower than the annual increase from June 2020 to June 2021 (13.1%). The average house price in July 2021 was also Â£ 9,000 lower than in June 2021 (Â£ 265,000).
According to Sarah Coles, personal finance analyst at Hargreaves Lansdown, that was to be expected. She explains: âThe market stopped to catch its breath in July, as we passed the stamp duty holiday deadline. “
So, is falling home prices just a hit? Or will they decline further in the fourth quarter? I watch.
Is the UK House Price Index Accurate?
The UK House Price Index (UK HPI) is considered to be the most accurate index as it derives its statistics from registration data provided by the HM Land Registry, the registers of Scotland and the Land and Property Services of ‘North Ireland.
This does not mean that other house price indexes are not accurate. Check out the gov.uk website for a full table comparing the different metrics used by various indices.
Are UK house prices going down?
Let me first point out that although the UK HPI is considered the most accurate measure of house prices, it publishes data that is lagged by two months. This is because collecting and processing data takes time.
For this reason, by the time the ONS releases data, other indexes, such as Halifax, have usually already released house price data for the previous month.
So while the UK HPI shows average house prices fell in July, Halifax has since released house price data for August 2021 which shows house prices are rising, albeit slowly.
Will UK house prices drop in Q4?
The short answer is that the future is uncertain, and no one can be sure. However, certain factors can influence the direction of house prices.
Clearly, the end of the stamp duty holiday has caused the average home price to drop month-to-month. This was expected because buyer demand declined once the stamp duty holidays began to decline.
The Halifax House Price Index indicates that house prices rose slightly in August 2021. This shows that there are still factors supporting the increases. Buyers can still save up to Â£ 2,500 under the declining stamp duty holiday which ends on September 30, 2021. The rush to avoid missing the deadline could have contributed to higher demand and an increase housing prices.
Let’s not forget that buyers are looking for more space, mortgage rates are low and government programs are encouraging first-time buyers to access the real estate ladder. These factors continue to fuel demand that is not balanced by supply. As a result, house prices continue to rise.
However, ONS home price data indicates that the number of new constructions increased by 12% and previously owned properties by 9.2%. If this trend continues, the imbalance between supply and demand could be corrected, leading to lower house prices.
Other factors could also affect house prices. As Sarah Coles explains, âHigher unemployment or further lockdowns could hurt confidence in the market. Then again, higher inflation could persist and persuade the Bank of England to review interest rates sooner rather than later next year, which would mean buyers would face higher mortgage payments, which could in turn hit the market. “
Naturally, it’s hard to predict how the fourth trimester will turn out. We’ll just have to wait and see.
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