David Gilman is partner in charge of Blacks Connect
The first Nationwide House Price Index of 2014 was seized upon last week with barely disguised glee given that it is the first of the many price indices available that give an overview of 2013 in its entirety.
The headline figure taken by most has been the fact average UK house prices at the end of the year were 8.4% up on 12 months previously – a considerable increase in anyone’s book which means the ‘average’ UK property is now valued at £175,826.
Of course all this talk of ‘average’ in the UK market is something of a red herring due to the fact the UK market is so splintered and is heavily regionalised.
The power house of pricing remains London and the South East with the Capital, according to Nationwide, seeing close to a 15% increase in prices over the course of 2013. All other regions were below 9% however with the North not even reaching 2%.
The big talking point, certainly over the last three to four months, has been around the potential formation of a house price bubble and whether initiatives like the government’s Help to Buy scheme might inflate this to dangerous levels.
At this stage it is too early to say, given that the second part of Help to Buy only officially got under way at the start of this year, however there’s no doubting that price levels across the country have risen. The question is whether this should be any cause for concern?
In answering this you first have to take London – particularly Central London – out of the equation.
The London market is, for all intents and purposes, a law unto itself and is shaped by demand and supply drivers that are simply not evident in most other regions of the UK.
Foreign investors and purchasers in particular shape great swathes of the property landscape in London and their influence is miniscule in most other UK cities.
With London out of the picture it appears that most regions have seen nothing more than relatively modest price increases, and we should not forget that prices fell quite considerably post-Credit Crunch and during the global recession.
Therefore, as many have pointed out, even with the increases seen in 2013, most regions are some way shy of the price peaks we saw in the marketplace in 2006/07.
This is not to say that prices couldn’t quickly move up to close to these levels in certain areas but I suspect these will be local occurrences rather than across an entire region.
The whole issue with worrying about a house price bubble being formed is what comes after this point – the bubble bursts and prices fall quickly and steeply.
Do we appear to be close to this sort of bubble formation and subsequent break in the UK? I don’t think so – while there are many tales of a shortage of property supply in South Eastern areas this is not the case across the rest of the country.
For these areas prices are not being pushed up by demand overwhelming supply and therefore the bubble is not forming.
We’ve already established that London is a law unto itself while in the South East we could see some evidence through the year, particularly if housing supply stays low, of the property market heating up quickly.
Therefore, as a whole, I don’t believe the UK is heading into a period of unsustainability for the vast majority of the country.
The one area where the bubble is most likely to grow is in areas such as the Home Counties – the ‘Outer South East’ as Nationwide call it – which grew by 7.6% over the year.
If things continue as they are then we should not be surprised to see this top 10% in 2014 – in the last quarter alone of 2013 the increase was 3.5% so you can see where this might go.
Interestingly, Northern Ireland prices went up by 3.9% in the same period – second only to London – and therefore we might well be at the start of a sustained rise here albeit from particularly low levels.
In that context it will be interesting to see if areas like Scotland, Wales, Yorkshire & Humberside, etc, show similar price rises over the course of the next 12 months.
What we can be certain about is there will be much more data to analyse over the course of the coming weeks that will give a much broader picture of what happened in 2013 and what we might expect in 2014.
The fact is that unless the supply of new properties coming to market shows a considerable increase then I think it is safe to say that prices in all UK regions are likely to increase during the course of this year.