House prices may be weakening, but transactions and mortgage approvals are steady

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest data on the housing market:

  • House price growth has slowed significantly over the last three years. The annual growth was just 1.4% in March.
  • Factors probably bearing down on demand have included higher Stamp Duty Land Tax rates, economic uncertainties and affordability constraints, whilst a modest pick-up in starts and completions has modestly improved supply. The Bank of England does not consider the availability of credit as a problem.
  • The housing market on some key metrics is, however, remarkably stable. Residential property transactions and loans approved for house purchase have been steady over the past three years.

Concerning other UK data:

  • The labour market remains robust, with strong employment growth. The unemployment rate was 3.8% in 2019Q1, the lowest since late 1974.
  • The number of EU nationals in the employment recovered in 2018Q4 and, especially, 2019Q1, when it was at record levels.
  • Vacancies are at near-record levels.
  • Annual real earnings growth continues. It was 1.3% (including bonuses) and 1.5% (excluding bonuses) in 2019Q1.
  • Labour productivity growth continues to disappoint. Output per hour fell 0.6% (QOQ) in 2019Q1 as a strong 1.0% increase in hours worked more than offset the 0.5% increase in GDP.
  • Retail sales rose 1.8% (QOQ) in the three months to April, to be a robust 5.4% higher (YOY).
  • CPIH inflation ticked up to 2.0% in April, whilst CPI inflation ticked up to 2.1%, reflecting rising energy prices.
  • Public sector net borrowing was £5.83bn in April 2019, compared with borrowing of £5.86bn in April 2018. The April 2019 figure was the lowest April borrowing since 2007.

There were some important political developments:

  • The Prime Minister announced (on 24 May) that she would stand down as Conservative Party leader on 7 June and the contest for the new leader would begin on 10 June. She would stay on as “caretaker” Prime Minister until a new leader had been elected (probably by the end of July ahead of the summer recess).
  • The UK European elections (held on 23 May) resulted in major wins for the new Brexit party and the LibDems (which did very poorly in 2014), with the Labour and Conservative parties losing seats compared with 2014. UKIP lost all of its seats.

Ruth Lea said, “It is important to keep the recent softening in the housing market in perspective. The market has not “ground to a halt”. Granted demand is reported to have weakened, but prices are adjusting to changed circumstances and activity on at least two main indicators, residential property transactions and mortgage approvals, has remained relatively stable over the past three years.”

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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