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Halifax House Price Index

Amanda Jarvis

May 4, 2006

* House prices increased by 2.0% in April and by 4.4% in the first four months of 2006.

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* At 8.0%, the annual rate of house price inflation is the highest for 13 months (March 2005). The pick-up so far this year was expected. The increases in recent months are partly attributable to technical factors. Specifically, the corresponding monthly figures last year were weak.
* As we forecast at the start of the year, house price inflation may increase again over the next few months. We subsequently expect it to decline as the technical factor outlined above unwinds. The much stronger pattern of house price growth in the second half of 2005 should mean the growth rate moderates in 2006 H2.
* At the regional level, house price growth continues to moderate in the north of England and Scotland. In 2006 Q1, all British regions recorded single digit annual house price inflation for the first time in 7 years.
* Housing market activity has risen steadily in recent months. Halifax Estate Agents registered the sixth successive rise in sales agreed on an annual basis in March. Sales agreed in the first three months of 2006 were 15% higher than in the same period of 2005.
* Cupar in Fife is Britain’s top property hotspot with a 36% rise in prices over the past year. Scottish towns dominate the ten towns that have seen the biggest house price rises during the last 12 months with the top four towns – Cupar, Lochgelly, Coatbridge, Lanark – all in Scotland. There were only six towns (out of 392 surveyed) with an average price below £100,000 in 2006 Q1 compared with 134 in 2003 Q1.
* The market is supported by solid fundamentals. They are: a strengthening economy, high levels of employment and low interest rates. These factors will continue to support the market over the remainder of 2006.
* The recent slight softening in the labour market and the continuing high level of house prices in relation to earnings should curb housing demand. Alongside higher utility and council tax bills, these factors should lead house price growth to moderate in 2006 H2. Council tax and utility bills are set to represent 35-36% of total housing costs in 2006/07, overtaking mortgage interest payments as the largest cost for homeowners this year.

Commenting, Martin Ellis, chief economist, said:”House prices increased by 2.0% in April and by 4.4% in the first four months of 2006.

Whilst the market may remain relatively buoyant over the coming few months, we expect the recent softening in the labour market and the continuing high level of house prices in relation to earnings to curb demand. Alongside higher utility and council tax bills, these factors should lead house price growth to moderate in the second half of 2006.”

Activity levels have risen steadily in recent months ……
Housing market activity has risen steadily in recent months. Halifax Estate Agents registered the sixth successive rise in sales agreed on an annual basis in March. Sales agreed in the first three months of 2006 were 15% higher than in the same period of 2005.

The increase in sales has been driven by higher demand with the latest RICS survey reporting that buyer enquiries increased for a record tenth successive month in March.

…and housing demand is well supported by fundamentals ……
Housing demand is well supported by a combination of a strengthening economy, high levels of employment and low interest rates. These factors will continue to support the market over the remainder of 2006.

Overall economic activity – as measured by gross domestic product (GDP) – increased by 0.6% for the second successive quarter during 2006 Quarter 1. This is in line with the UK’s long-term historical average rate of growth and confirms a strengthening in UK economic activity compared with the first three quarters of 2005.

…but labour market softening and pressures on household finances are likely to limit house price inflation

Labour market conditions, however, have softened in recent months despite the economy’s improvement. For example, the number of people unemployed in the three months to February 2006 was 30,000 higher than in the preceding three months.

Labour market trends and the current high level of house prices in relation to earnings are likely to constrain housing demand. Additionally, substantial increases in utility bills and above inflation council tax rises will put pressure on householders’ finances, which is also likely to curb housing demand. Council tax and utility bills are set to represent 35-36% of total housing costs in 2006/07, overtaking mortgage interest payments as the largest cost for homeowners this year.

The effect of such downward pressures on householders’ spending power has become apparent in the retail sector in recent months, with official figures showing a 0.7% decline in the volume of retail sales between 2005 Quarter 4 and 2006 Quarter 1. These developments should combine to limit the upward movement in house prices and prevent sustained acceleration in house price inflation.

Cupar in Fife is Britain’s top property hotspot
Cupar in Fife is Britain’s top property hotspot with a 36% rise in prices over the past year. Average prices in Cupar are up from £117,552 in 2005 Quarter 1 to £159,332 in 2006 Quarter 1.

Scottish towns dominate the ten towns that have seen the biggest house price rises during the last 12 months with six towns in the list: Lochgelly, Coatbridge, Lanark, Kilwinning and Alexandria in addition to Cupar. Indeed, all four towns recording the biggest price rises in the past year are in Scotland.

The remaining four towns in the top 10 comprise three in northern England – Cleckheaton in West Yorkshire, Darwen in Lancashire and Crook in County Durham – and one in Wales – Port Talbot.

All 10 towns delivering the strongest price rises over the past year have average house prices below the national average. The relatively high affordability of property in these towns has made them attractive to buyers as they have hunted for bargains. There were only six towns (out of 392 surveyed) with an average price below £100,000 in 2006 Q1 compared with 134 in 2003 Q1.

Another common feature of many of these towns has been their close proximity to major conurbations, making them suitable for commuting to major employment centres.

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