House prices in 20 key UK cities increased by 1.7% in the 12 months to June 2019 and while some are seeing strong growth, in seven cities the annual rise is less than 1%, the latest index shows.
There is also a growing polarisation in market conditions across southern England and the rest of the country. Whilst prices in London are still falling annually, quarterly growth has improved, according to the Zoopla/Hometrack index.
Growth is led by Edinburgh where prices increased year on year by 5.1%, followed growth of 4.9% in Liverpool, 4.7% in both Cardiff and Nottingham, 4.6% in Leicester, 4.1% in Manchester and 4% in Birmingham.
All seven cities where annual growth is less than 1% are in the South of England apart from Aberdeen. Indeed, in the Scottish city annual growth is down 3.2% and Cambridge also saw negative growth with prices down 0.3%.
Prices were unchanged year on year in London, while they increased by just 0.5% in Southampton and Oxford, by 0.7% in Bournemouth and by 0.8% in Portsmouth. Bristol has the highest annual growth in Southern England at 2%.
According to Richard Donnell, research and insight director of Zoopla, there is a growing polarisation in market conditions across southern England and the rest of the country. ‘Weaker demand means sales are not keeping pace with the new supply of homes for sale. Increases in supply are compounding the downward pressure on prices in Southern cities. The opposite is true elsewhere,’ he said.
An analysis of Zoopla listings data to plot the ratio of sales agreed to new supply in cities across Southern and Northern England shows that new supply has grown faster than sales in cities across Southern England since 2016, the start of the slowdown in price growth. ‘Today there are 1.3 units of supply new to the market for every sale agreed. Before 2016 supply struggled to keep pace with sales with a ratio closer to one which created scarcity and a strong upward pressure on prices,’ Donnell pointed out.
He explained that the market dynamics are stronger in Northern cities with continued growth in sales eroding supply at an increasing rate, supporting above average price growth. While the trend in the ratio of sales to new supply has been downward over the last five years it has started to rise over the first half of 2019 as new supply comes to the market at a faster rate than sales.
The index report says that underlying market conditions in Birmingham appear to be changing with the ratio increasing over the second quarter of 2019 as the growth in supply expands faster than sales. This suggests a weaker outlook for price growth in Birmingham where the rate of growth has slowed from a recent high of 7.2% in July 2017 to 4% today.
It also points out that Manchester has not seen as sharp an increase in the ratio of sales to new supply as Birmingham although the ratio has shifted higher. ‘This suggests continued above average price growth in Manchester. Liverpool has a sales to supply ratio of one and it is no surprise it has one of the fastest rates of growth as sales match new supply creating scarcity,’ said Donnell.
But there are signs of a continued, modest improvement in London which has led the slowdown in price inflation since 2016. ‘In our view, the London market is coming to the end of a three year repricing process. There has been an improvement in the ratio of sales to new supply thanks to a small, but important, increase in sales agreed and less new supply,’ Donnell explained.
‘Prices are still falling across many parts of London on an annual basis, but the quarterly growth rate has improved. Prices are firming on the back of more realistic pricing of new supply which is much closer to what buyers are prepared to pay,’ he added.
