The housing market showed signs of recovery in December, bouncing back with price growth at its fastest rate on a monthly basis for 13 years, according to the latest house price index from Halifax.
Prices were four per cent higher on an annual basis in December 2019, or 1.7 per cent higher month-on-month, taking the average price of a home up to £238,963. December was a time of resolution for the housing market, as voters went to the polls, delivering a sizable majority for the Conservatives.
A bounce-back in the housing market came, despite leading economic indicators suggesting that the UK economy was contracting in late 2019.
Halifax added that the four per cent growth seen in 2019 came at the upper end of their predicted price growth for the year, having expected closer to two to four per cent overall.
Recovery boosted by real wage growth
The strong performance seen in late 2019 is likely to be followed by a continued period of modest price growth in 2020, according to Halifax.
Russell Galley, managing director at Halifax explained: “Looking ahead, we expect uncertainty in the economy to ease somewhat in 2020, which should see transactions volumes increase, and further price growth made possible by an improvement in households’ real incomes.”
For a number of months, the Office for National Statistics has reported that average wages have continued to grow in real terms, boosting disposable incomes for UK workers. The continued growth in real incomes comes after a lengthy period of weak wage growth over the last decade, following the 2008 financial crisis.
Supply constraints remain big driver
Continued house price growth could continue to rise, despite weak economic performance, as the fundamentals suggest weak supply, owing to low levels of housebuilding, something of a perennial issue in the UK.
Despite this, growth is unlikely to accelerate significantly, as price pressures on prospective buyers could convince them to reconsider making purchases during the coming year, while the cost of the average home continues to remain several times higher than the average worker’s annual salary.
Mr Galley added: “Longer-term issues such as the shortage of homes for sale and low levels of housebuilding will continue to limit supply, while the ongoing challenges faced by prospective buyers will serve to constrain demand. As a result, we expect a modest pace of gains to continue into next year.
Underlying weakness persists
Despite the rosy picture painted by rising real wages, and supply constraints keeping house price growth in positive territory, the underlying health of the UK economy could act to limit optimism over the course of 2020.
IHS Markit released its monthly survey on the performance of the UK’s three main drivers, the services, construction and manufacturing sectors. The surveys rely on readings above 50 points indicating expanding activity.
However, the data from IHS Markit for December provided readings below 50 for two out of the three sectors, meaning that the construction and manufacturing sectors contracted, while the services sector stagnated. These figures, when put together, implied that the economy shrank overall at year’s end.
Any sign of a post-election bounce for the economy is only likely to be observable, when data for January 2020 begins to be collected.