‘Evidence that house prices picked up a little in February follows a series of data releases suggesting that economic conditions may not be quite as weak as feared after the UK economy contracted in the final quarter of 2011,’ said Robert Gardner, Nationwide's chief economist.
‘Surveys of activity in the manufacturing and service sectors point to a rebound in January, while consumer confidence and retail spending were both stronger than expected during the month,’ he added.
The index also shows that measures of activity in the housing market have also picked up, with the number of housing transactions rising by 23% year on year in January and the number of UK mortgage approvals, a leading indicator of sales, up 36%.
However, Gardner warns that it remains to be seen whether this trend will be sustained. ‘Given the still challenging economic backdrop this increase in housing market activity may be the result of a temporary rise in first time buyers entering the market to take advantage of the stamp duty holiday before it expires in March. If so, this may continue to support activity and prices in the near term before cooling over summer,’ he said.
He pointed out that more fundamentally, residential property remains expensive relative to incomes, in part because housing is in relatively short supply. The pace of house building, especially in England, has been running well below the rate of household formation, a trend which is set to accelerate if official population projections come to pass.
There has also been strong growth in the private rental sector. The share of people renting has increased to 34%, the highest proportion since 1988. The share of social renters has remained fairly stable in recent years at 17.5%, while the proportion of private renters has increased to 16.5% the highest level since the 1970s.
‘The increase in the demand for rental property has also put upward pressure on rents in recent years. In the decade before the financial crisis rental growth persistently lagged behind earnings growth, but this pattern has now reversed,’ explained Gardner.
‘Despite the increase in the proportion of the population renting a home in recent years, the aspiration to eventually become a home owner remains undiminished. The most recent English Housing survey suggests that 23% of people in social housing and 59% of those in the private rental sector expect to be able to buy their own home in future,’ he said.
‘However, the same survey found that, on average, people expect that this will take longer. Just 22% of private renters expect to take their first steps into the housing market within two years, down from 29% in 2008. Conversely, 47% expected it to take at least five years, up from 40% believing it would take this long in 2008,’ he added.
