As Safe As Houses?

Aside from the Brexit circus, the big news in my ‘special little world’ has been Halifax’s announcement that the growth in UK house prices is continuing to slow. The UK’s largest lender announced that their calculations highlight that house price growth is only a fraction above inflation and likely to slow further.

 

Halifax’s figure of 3.9% differs from most current indicators (and that of Nationwide’s – the UK’s largest building society) that the figure is even more modest – probably nearer 2.5%. Regardless, the key message is that house price growth is slowing and will slow further.

 

Which all leaves two key questions:

 

1. Why Is It Happening?

It is a range of issues that have created the cocktail. Firstly, Brexit (obviously) isn’t helping. Uncertainty makes people more cautious to spend and stretch themselves and choosing to retain the status quo for a while is the safest option. Secondly (and equally as impacting), is that wage growth is less than inflation which means that we have less money in our pocket than last year. Earnings growth being above inflation is a key ingredient to a positive housing market.    

 

2. Is This Really A Big Deal?

In short, yes. In fact it’s massive. There is a direct correlation between house price growth and our economy, which the Government is all too aware of. When house prices are buoyant, the UK spends money and the economy gets a lift. It’s the collective psychological feeling that you are wealthy due to an increase in equity in property that then allows more fanciful spending.

 

Earnings growth has been and is likely to continue to be around 2% over the next 12 months. Which leaves us to ponder what inflation will be over the next 12 months.

 

Negotiations with Brexit will impact our exchange rate which will impact the cost of imports……which will impact the rate of inflation. That bloody Brexit gets everywhere!

 

Interesting times