The Office for National Statistics confirmed what we all suspected today: the housing market is cooling off with the weather, as the over the top price growth from earlier this year gets a tad more sensible.
House prices grew 10.4% in the year to October, spurred on by - you guessed it - inflation of 17.2% in London and 11.9% in the south east. Excluding those runaway regions, prices increased 6.7%.
Annual house price growth, year to October 2014. Source: ONS
The top line figure still sounds like a lot, but it was down from 12.1% in September, while the capital’s annual growth was 18.8% that month.
Annual house price growth. Source: ONS
Indeed, the average property price ticked up just 0.1% in October, as also recorded by the Land Registry’s data. And it could even be falling now – Rightmove found asking prices of houses sold through its site dropped 3.3% in December, while the ONS figures also show the average price fell from £273,000 to £271,000 in October on a non-seasonally adjusted basis.
Average house price, October 2014. Source: ONS
All of which adds up to a decidedly less bubbly housing market than earlier this year. But while it looks like it’ll be cooler for at least a little while yet, the underlying structural cause of house price growth – an undersupply of new houses – isn’t going anywhere.
But wait, I hear you cry, didn’t David Cameron announce a new homes scheme just yesterday? The Starter Home Initiative was indeed unveiled six months earlier than originally planned (right before election season kicks off in earnest), but the policy gives 100,000 first time buyers 20% off new homes, funded by an exemption for builders’ from levies on certain brownfield sites.
A nice fillip for first timers, who paid 12% more for houses in the year to October, compared to 9.7% for buyers who already owned houses, according to the ONS. But it will merely pump up demand rather than doing anything serious to address the shortage of new builds – more than 100,000 a year by some estimates. Homebuilders are definitely not going to flood the market and haemorrhage their margins any time soon, so there’s only one way prices are going to go over the medium term: up.