Property prices up over 20% in London in last year

The growth in national average home prices in the UK have increased by 9.2% in the last 12 months while in London they are rising at a worrying pace, it is claimed.

Prices in and around the capital have soared ‘an unhealthy’ 20.8% over the last year, according to Home UK, government initiatives coupled with unprecedented low supply continue to drive prices inexorably higher.

The national annual rate of increase, currently 9.2%, is now considerably higher than during the last property boom as measured by this index, and around 7% higher than inflation. Overall supply of properties entering the sales market continues to fall, down 6% across the UK over the last year. The regional market of East Anglia contracted most over the last 12 months, by 21%, in terms of the number of sales properties entering the market.

Home prices in Greater London leapt a further 2.4% over the last month, bringing the annual rise to an alarming 20.8% while the average annual growth in England and Wales as a whole was 9.2%.

Home prices rose in all English regions, Scotland and Wales over the last month. Monthly price rises outside of London were strongest in the South East at 2% and the South West at 1.5%, whilst Wales and the East Midlands registered only marginal gains.

All the English regions, Scotland and Wales registered a drop in the average marketing time over the last month. The shortest, London at 102 days, is comparable to those previously observed pre-crisis of 2006/2007.

However, the longest in the North East at 321 days and Wales at 289 days, show that there remains a considerable backlog of unsold property that must clear before it can be said these regional markets are booming.

Data for typical marketing times identifies the markets that are in the throes of recovery. The Northern regions, Yorkshire and Wales all show significant drops in marketing times. The North West is the most improved regional market over the last month, with a drop in the median figure from 146 to 117 days. There is still clearly considerable room for improvement in all these regions, however, as the typical time on market for England and Wales combined is 90 days.

The booming English regions, Greater London, the South East, East Anglia, the South West and East Midlands, with typical marketing times of 48, 59, 69, 82 and 85 days respectively, show little or no change since last month. The top four performing regions have significantly lower marketing times than at this time last year and reduced supply of property for sale. Hence, this supply demand imbalance will drive prices even higher over coming months.

Supply, or lack thereof, is a key driver of the housing market. Prices are rising quickest in areas where the supply of properties for sale is falling. Similarly, house prices are moving up only gradually where supply remains at or near normal levels. Overall, the supply of properties entering the market each month has fallen by 50% since April 2008. Moreover, the current amount of stock for sale is only 54% of what it was six years ago.

The firm says that over the course of the development of the current property boom, supply has actually fallen steadily and consistently. Potential vendors have not been tempted to enter the market place. Instead they hold on to their well performing assets, reluctant to park their money elsewhere. The result is falling supply and scarcity creating further price rises, a characteristic not seen in the previous boom. Back during April 2007, in the heyday of the last boom just over 214,000 properties entered the market, more than twice the total in April 2014 when it was 98,000.
 
‘The property market continues to race ahead of many people's expectations. The current booming areas are self generating price momentum as falling supply leads to a severe demand supply imbalance, which leads to further spiralling price rises and an even greater reluctance to sell,’ said Doug Shephard, director at Home.co.uk.

‘Such a feedback loop is highly dangerous for the stability of any market and explains why London property has overheated and now looks like an asset bubble. The Bank of England Governor may be keeping an eye on the property market, but it is difficult to imagine how the supply problem can be dealt with quickly and efficiently before the market spirals out of control,’ he explained.

‘In 2006, the Bank failed to contain rising property prices by raising interest rates. Applying the brakes didn't work and disaster ensued. Overheating property markets present structural risk and imbalance to the entire UK economy,’ he pointed out.

‘The UK needs a stable and relatively calm housing market if it is to rebalance the economy. A property boom will only inhibit this by reducing the international competitiveness of the labour market and soaking up investment capital that could be invigorating other parts of the economy and creating jobs,’ he added.