Extraordinary jump in property prices

UK house prices seem detached from reality as the annual rate of increase reaches its highest since 2004. That was in the middle of a 'never to be repeated' house price boom. Yet here we are again.

The price of a typical home is now £33,000 higher than it was a year ago, despite increasing pressures on household budgets. Detached houses have led the way, up by £68,000 since the start of the pandemic. Prices are up in all regions.

Nationwide's numbers for March

• Annual house price growth increased to 14.3%, from 12.6% in February
• Wales remained strongest performing region in Q1 2022, while London remained weakest
• Detached properties have increased by nearly £68,000 since onset of pandemic, while average flat prices up £24,000

	March 2022	February 2022
Monthly change	+1.1%	+1.7%
Annual change	+14.3%	+12.6%
Average price ​Not seasonally adjusted	£265,312	£260,230

The housing market has retained a surprising amount of momentum given the mounting pressure on household budgets and the steady rise in borrowing costs. The number of mortgages approved for house purchase remained high in February at around 71,000, nearly 10% above pre-pandemic levels. A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices.

The continued buoyancy of housing demand may in part be explained by strong labour market conditions. The unemployment rate has continued to trend down in recent months (to 3.9% in the three months to January) from already low levels. Wage growth has accelerated, though it is running below inflation.

​Robert Gardner, Chief Economist, Nationwide

Zoopla/Hometrack's top five cities

Zoopla's numbers run a few weeks behind Nationwide's, so do not reflect the increase in March. What they do show is that price increases are not restricted to rural properties, with the major cities continuing to show strong gains, albeit at a more modest pace. Demand for city properties is now 65% above the 5 year average.

• Buyer demand remains unseasonably high, with demand for family houses more than twice as high as usual for Q1
• Wales registers the highest regional price growth for the 12th month, at +11.8%. London price growth is the slowest at +3.2%
• Busy start to the year, with sales agreed in Q1 more than 30% higher than pre-pandemic levels

	Average price	February 2022 ​y-o-y	February 2021 ​y-o-y
Liverpool	£143,800	+10.3%	+7.5%
Nottingham	£184,600	+9.5%	+5.7%
Manchester	£202,300	+9.2%	+6.8%
Leicester	£210,700	+8.8%	+5.3%
Sheffield	£159,600	+8.7%	+5.9%

There are two factors boosting demand at present. First is the continued demand for family houses, with the demand for three-bed houses more than twice as high as usual for this time of the year.

The second factor is a continued strengthening of demand in some key cities around the UK. Since January, demand has risen by 5% in Birmingham and 7% in Newcastle, while buyer demand has jumped 20% in Blackpool and 19% in Swindon since the start of the year. This trend has been mirrored in the rental market, with the opening up of cities leading to a boost in demand.

​Zoopla UK House Price Index

Outlook

Nationwide and Zoopla's indeces are both respected for their accuracy, but look at the road through the rear view mirror. There is every reason to suggest that the current rate of price increase is likely to level off in the near future. 

Household budgets are coming under increasing pressure. Inflation is at its highest in decades, energy costs have just seen their sharpest increase ever and the higher National Insurance will be seen in salary slips from the end of this month. Many are likely to be more cautious about property purchase in the coming months.