House prices fall in March: what next?
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
Is the UK economy headed for a soft landing?
Revised figures published last week confirmed that the economy entered a shallow recession in the final months of last year, but a return to growth in Q1 now looks very likely. The calendar-year expansion is likely to be 1% or even less, according to EY, so this will be a period of stagnation with long-term costs. However, these are conditions that will enable policymakers to bring rates into more manageable territory.
We talked on Wednesday about new figures showing the manufacturing sector returned to growth for the first time in two years during March. The same release for the services sector, out yesterday, revealed an unexpected loss of momentum - the smallest rise in activity since November 2023. This is no bad thing; input prices continue to rise sharply, largely due to higher salary payments, but prices charged by service providers increased at the slowest rate since September. Companies are finding limits to what they can pass through to consumers.
Businesses expect to hand out pay rises of about 4.9% over the next twelve months, according to a closely-watched Bank of England survey. That's still inconsistent with inflation running at 2%, but it is the lowest level since the Bank began asking the question in spring 2022.
The last mile
The strength of the US economy continues to squeeze the housing market. The 30-year fixed rate mortgage is hovering just below 7%, with few signs that rates will decrease meaningfully in the near term, according to FreddieMac.
Federal Reserve officials expect to make three rate cuts this year, but a run of strong economic data suggests the first isn't imminent. A jobs report out later today should show a marked slowdown in hiring, which will be crucial if those expectations are to materialise.
Officials at the European Central Bank and the BoE will be watching events closely - cutting earlier than the Fed raises the prospect of importing inflation via a likely weakening in their respective currencies. Euro zone inflation is now looking particularly benign - the annual rate slowed to 2.4% in March, official figures showed earlier this week. The ECB is likely to begin cutting in June, with reductions likely once a quarter until late 2025, according to economists surveyed by Bloomberg. That would bring the key rate to 2.25%.
House prices
UK house price growth slowed to an annual rate of 0.3% in March, from 1.6% in February, Halifax said this morning. That follows a similar report by Nationwide earlier this week - see Wednesday's note.
Prices fell 1% during the month, reflecting a brief uptick in mortgage rates and the subsequent knock to sentiment: "Financial markets have... become less optimistic about the degree and timing of Base Rate cuts, as core inflation proves stickier than generally expected. This has stalled the decline in mortgage rates that had helped to drive market activity around the turn of the year," says Halifax Mortgages Director Kim Kinnaird.
Indeed, though improved inflation figures and a relatively dovish Bank of England meeting in March may have revived some lost momentum.
"The direction of travel for the property market is currently sideways," says our own Tom Bill. "Once a rate cut appears firmly on the horizon and more mortgage rates start with a 3, we expect stronger demand to push UK prices 3% higher this year.”
Supply
Last month's RICS Residential Market Survey came with signs of a recovery in the number of homes for sale, which has been running well below the long run average. Respondents noted an increase in the number of market appraisals undertaken through February and average stock levels are now running at 42 per branch, the highest level in three years (see chart).
Rightmove figures out this morning suggest that positive sentiment in the early weeks of the year have sustained further increases in stock levels. More homes were put up for sale on Thursday last week than on any other day this year - in fact, March 28th was the third-busiest day for new listings since the summer of 2020, the company said.
In other news...
Global glut turns solar panels into garden fencing option (FT), and finally, European house prices fall for first time in a decade (FT).