What does the Halifax House Price Report really mean?
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UK homeowners have often found themselves ‘earning’ more from the increasing value of their property than from their take-home pay. But new research today from Halifax suggests that this historic trend might be reversing.
For many in the property market, this is welcome news.
After years of property prices drastically outpacing earnings, prospective homebuyers will be breathing a small sigh of relief. Affordability seems to be on the rise. Mortgages seem to be becoming cheaper.
But it would be wrong to celebrate prematurely.
The two trends
First things first, it’s important to understand how this news came to be. In short, this latest report from Halifax is an inevitable result of two diverging trends.
On the one hand, UK wages have been rising much faster than expected – in fact, they’ve risen at the fastest rate since the financial crisis. Real pay growth, taking inflation into consideration, has recently edged up to 1.6% on the year, excluding bonuses.
This probably has something to do with workers’ bargaining power, which has gradually risen on the back of the lowest levels of unemployment in 40 years; a record 32.7m people were in work in the three months to February, with most of the increase coming in the form of full-time employment.
On the other hand, house price growth is standing at a six-year low. Average house prices have increased by just 0.6% this year to February 2019, and have actually fallen by 3.8% in London.
The is probably related to a mixture of factors: stamp duty, minimal inflation in the pound, and the dreaded B-word are just a few examples.
In any case, combine these two movements, and we have today’s headline.
Examining things further
That might sound straightforward, but there’s a couple of interesting points to make here. The first is that there continues to be significant variations across the country.
For example, while the trend across the country indicates that the gulf between wages and prices is diminishing, London appears to be an exception , with average house prices increasing more than pay (£23,817) over the last five years.
Leafy London borough Richmond-upon-Thames is the biggest offender, with a gap between inflation and wages of £55,482.
This is, frankly, a little unexpected, because house price growth in the capital has been particularly slow – so one would naturally expect the opposite to be true.
London earnings, the Halifax report appears to suggest, aren’t performing as well as they should.
Affordability
The other point to make here is that, while the gap between wage growth and house price growth is apparently closing, affordability will undoubtedly remain a challenge for the foreseeable future.
ONS figures show that on average, full-time workers can expect to pay an estimated 7.8 times their annual workplace-based earnings on purchasing a home in England and Wales. In London, where house prices average at £620,000, this is a particular pain point.
Needless to say, none of this is going to change overnight. Remedying the UK’s chronic supply and demand problem is just about the only way to go about fixing things.
Affordability issues can’t be resolved with gradual wage growth alone.
Make no mistake, Halifax’s report is positive news for everyone in the market. But in the same breath, it’s important to note regional variances and the continued issues surrounding affordability.