On 17 May, England reached Step 3 in its roadmap out of lockdown. A largely successful vaccination rollout has brought cases below an average of 2,000 a day (60,000 in January) and allowed workplace mobility to recover to its highest level for the pandemic (Chart 1).
The partial return to normality will come as a relief to many parts of the economy. But one sector already buoyed by excess savings, government support and changing lifestyles has been the UK residential housing market. With average house prices up between 6.7 and 8.8% since March 2020, depending on the measure, the average household has in real terms banked around £16,500 on their house. Also, monthly asking prices have, on average, grown more than twice as quickly during the pandemic in many regions (Chart 2).
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Summary
- Average asking prices rose 1.8% on last month, 2.5 times higher than the average May increase over the last decade.
- Realtors expect further price increases over coming months. But they indicate long-term price growth in London will remain significantly below average.
- The letting market also saw above-average price growth during the pandemic, but consensus sees rental prices and demand pick up significantly in the next three months.
House Prices Continue to Rise
On 17 May, England reached Step 3 in its roadmap out of lockdown. A largely successful vaccination rollout has brought cases below an average of 2,000 a day (60,000 in January) and allowed workplace mobility to recover to its highest level for the pandemic (Chart 1).
The partial return to normality will come as a relief to many parts of the economy. But one sector already buoyed by excess savings, government support and changing lifestyles has been the UK residential housing market. With average house prices up between 6.7 and 8.8% since March 2020, depending on the measure, the average household has in real terms banked around £16,500 on their house. Also, monthly asking prices have, on average, grown more than twice as quickly during the pandemic in many regions (Chart 2).
Yet homeowners could benefit from the reopening as well. Yesterday, Rightmove published data on advertised property prices, a leading indicator of future sales prices. Average asking prices in May were up 6.9% YoY and 1.8% MoM (Chart 3). The monthly figure is 2.5 times higher than the average MoM increase in May over the last decade, and it follows 0.8% and 2.1% MoM increases in March and April, respectively. Regionally, all areas outperformed pandemic averages, especially London (Chart 4).
With the stamp duty holiday lasting until the end of September, the residential housing market outlook remains healthy. In a survey of nearly 500 local real estate branches, the Royal Institute of Chartered Surveyors finds net positive near-term expectations of sales and house prices (Chart 5). Over a 12-month horizon, realtors expect house price growth to return to normal for England and Wales (Chart 6). House prices in London are expected to rise just 1.1%, compared with 6.1% between 2010 and 2020. But the North could see above-average price growth persist.
Rental Prices
On balance, landlords have also experienced above-average price growth. Rental prices published by HomeLet show prices have increased 3.7% since March 2020. For all regions except London, average annualized MoM rental price growth during the pandemic has exceeded growth in the four years prior (Chart 7). Yet unlike house prices, YoY growth has been much less volatile (Chart 8).
As the economy reopens, London’s rental market will somewhat indicate how sticky the migration from the capital has been. In April, rental prices in Greater London fell 0.2% MoM, following a 0.4% and 0.2% decline in February and March. However, data from the Residential Letting Markets Survey shows most realtors expect higher rental prices over the next three months in England (Chart 9). For London, there was no clear indication of whether rental prices will increase or decrease in coming months, however, many survey respondents noted an uptick in demand. Indeed, the net balance for London was +29% in April (a positive net balance means more respondents reported a rise than a fall), the highest since September 2019 (Chart 10).