2013 house price outlook more unclear than usual
Monday 10th December 2012
The outlook for the UK economy and house prices remains more unclear than usual, according to the latest Halifax UK Housing Market Outlook for 2013.
Subdued economic growth, sustained high unemployment and pressures on household finances will constrain housing demand.
But the relatively low level of mortgage payments in relation to income to provide support for house prices.
House prices are likely to be strongest in London and the South East.
Prices are likely to rise, albeit very slowly, beyond 2013 as the economy strengthens.
Halifax’s housing economist, Martin Ellis said: "Conditions in the housing market have been largely unchanged over the past 12 months with little overall movement in either house prices or sales for the second consecutive year.
"This stability is remarkable given the poor domestic economic climate and the considerable uncertainty regarding the prospects for both the UK and world economies.
"Both demand and supply pressures in the market have altered little during the course of 2012, and this has been the key reason for the lack of direction in either sales or prices at a national level."
"The economic situation is set to remain challenging over the coming year. We expect the UK economy to continue to build on its recent signs of recovery, but the pick-up in activity is likely to be very modest with the pace of growth remaining well below the UK's long-term average rate.
"Conditions in the housing market are likely to remain much as they are against this economic background. Accordingly, we expect continuing broad stability in house prices nationally in 2013. Prices are again likely to end the year at levels close to where they begin with the market continuing to lack any genuine direction.
"The outlook for the UK economy remains highly uncertain. Risks in the global economy remain significant and how these evolve will be key determinants of how activity in the UK progresses over the coming year.
"The US fiscal cliff – the $600bn of fiscal tightening scheduled for January 2013 – represents a key risk and uncertainty over whether Congress and the recently re-elected President can strike a deal remains high.
"The Eurozone continues to make slow progress towards a comprehensive solution to its economic problems, but considerable uncertainty
remains over the outcome and therefore the prospects for the euro. As a result, the outlook for the UK economy and house prices remains more unclear than usual.
"Subdued economic growth, sustained high levels of unemployment and ongoing pressures on household finances will all continue to constrain housing demand. The fiscal tightening programme, combined with many families continuing to seek to reduce their debts, is likely to significantly curb households' ability, and willingness, to spend. Rising utility prices, in particular, threaten to keep inflation above the Government's 2% target - at around 2.5-3% next year.
"This will act as another headwind for households with average earnings growth again unlikely to match inflation in 2013. These factors will all restrict the demand for property.
"The relatively low level of mortgage payments in relation to income continues to provide support for house prices. Mortgage payments for a new borrower remain significantly below the long-term average as a proportion of disposable earnings. Typical mortgage payments for a new borrower - both first-time buyers and homemovers – at the long-term average loan to value ratio, have nearly halved as a proportion of disposable earnings from a peak of 48% in 2007 Quarter 3 to 26% in the third quarter of 2012. This is significantly below the average of 36% recorded over the past 27 years.
"This support from the favourable affordability position for both those who already have a mortgage and those who are able to raise the required deposit to buy a home should remain largely unchanged in 2013 with the Bank of England Bank Rate expected to remain
at its current level of 0.5% throughout next year.
"There are some signs that the Funding for Lending Scheme (FLS) is helping to reduce mortgage rates with the average mortgage rate on new mortgages falling in recent months. The FLS should help to ease credit constraints, resulting in some improvement in mortgage
availability in 2013."
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