The housing market experienced a slight dip in average house prices during May, as reported by the Nationwide Building Society, and experts caution that this could be a harbinger of further troubles.
According to the Nationwide house index, prices saw a 0.1 percent decline last month, following an unexpected increase of 0.4 percent in April. In a year-on-year comparison, the average house price has dropped by 3.4 percent.
Nationwide’s chief economist, Robert Gardner, expressed his concerns, stating, “After showing signs of improvement in April, house price growth slowed down again in May. However, this can be attributed largely to base effects, with prices remaining relatively steady when accounting for seasonal effects. On average, prices continue to remain 4.0 percent below their peak in August 2022.”
Gardner further highlighted recent Bank of England data, which indicated a modest recovery in housing market activity. However, the number of mortgages approved for house purchase in March still lags around 20 percent behind pre-pandemic levels.
He also drew attention to the mounting challenges facing the housing market in the near future. Although consumer price inflation decelerated in April, the decline was much smaller than anticipated by most analysts.
Consequently, investors have started adjusting their expectations for the future trajectory of the Bank Rate, with late May showing a noticeable increase. This suggests that the rate could potentially reach around 5.5 percent, well surpassing the approximately 4.5 percent peak that was projected in late March. Furthermore, interest rates are expected to remain elevated for an extended period.
Gardner believes that these worsening conditions are likely to exert renewed upward pressure on mortgage rates, which had been on a downward trend following a spike triggered by last year’s mini-Budget in September.
However, he concludes on a relatively positive note, stating, “Nonetheless, we anticipate a relatively smooth landing as the most probable outcome, given the stable labor market conditions and relatively healthy household finances. While housing market activity may remain subdued in the short term, robust growth in nominal income, coupled with slightly lower house prices, should gradually improve housing affordability, particularly if mortgage rates moderate once the Bank Rate reaches its peak.”