Introduction: Annual house price growth turns negative, falling to weakest level since 2012
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Annual house price growth has moved into negative territory for the first time since June 2020, Nationwide building society said this morning.
The average price of a home declined by 1.1% year-on-year to £257,406 in February, the weakest rate since November 2012. In January, the annual rate showed 1.1% growth.
Prices fell 0.5% compared with January, following a 0.6% drop the month before. It was the sixth monthly decline in a row, and left prices 3.7% below their peak in August.
Robert Gardner, Nationwide’s chief economist, said:
The recent run of weak house price data began with the financial market turbulence in response to the mini-Budget at the end of September last year. While financial market conditions normalised some time ago, housing market activity has remained subdued.
This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time. Indeed, inflation has continued to outpace wage growth and mortgage rates remain significantly higher than the lows recorded in 2021. Even though consumer sentiment has improved in recent months, it is still languishing at levels prevailing during the depths of the financial crisis.
It will be hard for the market to regain much momentum in the near term since economic headwinds look set to remain relatively strong, with the labour market widely expected to weaken as the economy shrinks in the quarters ahead, while mortgage rates remain well above the lows prevailing in 2021.
In another sign that the housing market has slowed sharply, Persimmon, one of the UK’s biggest housebuilders, warned of lower profits this year and slashed its dividend by 75%. It made an underlying pre-tax profit of £1.01bn last year, up 4%.
There’s a slew of other data out today, and Bank of England governor Andrew Bailey will be speaking at a cost of living conference organised by the Brunswick Group and hosted at Coin Street Social Enterprise in London later this morning.
The latest quarterly FTSE reshuffle is expected to lead to the greeting cards retailer Moonpig and the betting firm 888 being relegated from the FTSE-250 index to the FTSE small cap.
The Scottish sausage skin manufacturer Devro may briefly enter the FTSE 250 after “a banger of a performance for shares” which surged following a cash offer for the company, said Susannah Streeter, head of money and markets at Hargreaves Lansdown. The results of the reshuffle, based on yesterday’s closing prices, will be announced later today, probably this afternoon.
The Agenda
-
8.15am GMT – 8.55am GMT: Spain, Italy, France and Germany S&P Global manufacturing PMIs for February
-
8.55am GMT: Germany unemployment for February
-
9am GMT: Eurozone S&P Global manufacturing PMI final for February
-
9.30am GMT: UK Mortgage approvals and consumer credit for January
-
9.30am GMT: UK S&P Global manufacturing PMI final for February
-
10.10am GMT: Bank of England governor Andrew Bailey speech
-
11am GMT: Italy GDP growth for 2023 (previous: 6.6%)
-
1pm GMT: Germany inflation for February
-
3pm GMT: US ISM Manufacturing PMI for February (forecast: 48)
Key events
Co-op Bank profits rise more than fourfold
Annual profits at the Co-operative Bank (which is no longer part of the wider Co-operative Group) have risen more than fourfold to over £130m, as the bank benefited from rising interest rates.
Pre-tax profits jumped from 31.1m in 2021 to £132.6m in 2022. Net interest income climbed by by 41% to £458m.
Interest rates on mortgages tend to rise faster than on savings products, but the Co-op boss, Nick Slape, said that the bank passes back about 60% of every rate rise to savers.
Speaking on BBC Radio 4’s Today programme, he talked about the rise in fraud.
The fraudsters are getting ever more sophisticated that’s the challenge we have in a digital environment. We put a lot of effort into protecting our customer base and we carry the pain in our P&L [profit & loss statement], we compensate our customers around the 90% mark for fraud.
When asked whether the Co-op, which is owned by private equity and hedge funds, would make another bid for rival TSB, Slape replied:
Nothing planned at all.
However, the Co-op is the frontrunner to buy Sainsbury’s Bank’s £650m loan portfolio, according to reports. When asked whether the Co-op wanted to acquire it, Slape said:
Possibly.
How low will UK house prices go? Housing experts are predicting price declines of between 5% and 20%.
For example, Lloyds Banking Group, which owns the mortgage lender Halifax, is expecting prices to fall by almost 7% this year, while the upmarket estate agents and property firm Knight Frank has pencilled in a 5% drop.
Freelance consumer journalist Patrick Collinson has looked at what’s going on in other countries.
Victoria Scholar, head of investment at interactive investor, said:
The housing market is struggling under the weight of lacklustre economic growth, a softening consumer, falling real wages, and rising mortgage rates as the Bank of England continues to raise rates. Potential homeowners appear to be holding off in anticipation that mortgage rates and house prices will cool later this year. Stemming an even steeper slide is the chronic shortage of housing supply in the UK.
According to Zoopla, UK home sellers have had to cut £14,000 from their asking prices on average with 40% of properties having to lower their price online in order to attract buyers. However looking longer term, data from Halifax indicated that over three years from January 2020 to December 2022, house prices have risen by just over 20%, with particular strength for larger properties outside of busy urban areas after the pandemic saw many house buyers hunt for more space for a working from home office as well as a garden. Meanwhile urban areas have struggled with flats in London climbing the least.
Persimmon warns on sales and profits
As reported earlier, the housebuilder Persimmon has also sounded the alarm on the housing market. Dean Finch, the chief executive, said:
The market remains uncertain. Our marketing campaign has helped improve the group’s sales rates in the new year from the lows at the end of 2022, but they still remain lower year on year. We have carefully managed our pricing, recognising the improved value and energy efficiency of our product in these difficult times and sales prices have proved resilient. We responded quickly to stimulate sales, enhance cost controls and preserve cash, promptly slowing new land investment in the fourth quarter of last year.
Nonetheless, the sales rates seen over the last five months mean completions will be down markedly this year and as a consequence, so will margin and profits. However, it is too early to provide firm guidance.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said:
Looking ahead, we still expect house prices to fall over the coming months until they are about 8% below their peak. Mortgage rates appear to have hit a floor for now, and households’ real disposable incomes will be squeezed again in April by the withdrawal of energy price subsidies by the government.
In addition, expectations among the public that house prices will fall sharply are well-entrenched — 62% of households expressing a view expected house prices to drop by at least 5% over the next year, according to the BSA’s Q4 Property Tracker Survey —suggesting demand won’t recover until a significant drop has materialised. We have tentatively pencilled in a 5% rise in house prices for 2024, however, reflecting our view that the monetary policy committee will start to reduce interest rates next year.
Independent housing analyst Anthony Codling has tweeted:
House price inflation weakest since November 2012
The Nationwide painted a rather downbeat picture for house prices this morning, reporting that house price inflation has not been weaker since November 2012https://t.co/ZbTfkHTrHN via @twindighomes— Anthony Codling (@anthonycodling) March 1, 2023
Here’s some instant reaction to the annual drop in house prices.
Tom Bill, head of UK residential research at Knight Frank, said:
While most of the economy has moved on from the mini-Budget, the hangover is longer for the UK housing market. It has led to a mismatch between the most recent anecdotal evidence and the latest data. While last month saw the steepest annual house price decline in more than ten years, activity has been solid so far this year as buyers and sellers adapt to higher mortgage rates.
We expect transaction levels to fall from the heights of the pandemic and prices to decline by 5% this year but the UK housing market is far from being on its knees.
John O’Malley, director of Scotland-based estate agents O’Malley, which has branches in Alloa, Edinburgh, Stirling and West Lothian, said:
When you look at the broader economic backdrop, it’s no surprise both monthly and annual price growth are now in the red. Buyers are wary and many sellers are struggling to come to terms with the fact that their properties are no longer worth what they were six months ago. 2023 will be a tough year for many households and the property market will not be protected from the ongoing cost of living crisis and higher mortgage rates.
Buyer demand has dropped for ten consecutive months and may continue to fall as people start to consider alternative, more affordable accommodation. It is not unusual to see a drop in both supply and demand in February as buyers and sellers alike batten down the hatches and wait for the spring. However, this February, the demand for property was almost half that of last year, while the supply of property was also weaker than usual.
Introduction: Annual house price growth turns negative, falling to weakest level since 2012
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Annual house price growth has moved into negative territory for the first time since June 2020, Nationwide building society said this morning.
The average price of a home declined by 1.1% year-on-year to £257,406 in February, the weakest rate since November 2012. In January, the annual rate showed 1.1% growth.
Prices fell 0.5% compared with January, following a 0.6% drop the month before. It was the sixth monthly decline in a row, and left prices 3.7% below their peak in August.
Robert Gardner, Nationwide’s chief economist, said:
The recent run of weak house price data began with the financial market turbulence in response to the mini-Budget at the end of September last year. While financial market conditions normalised some time ago, housing market activity has remained subdued.
This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time. Indeed, inflation has continued to outpace wage growth and mortgage rates remain significantly higher than the lows recorded in 2021. Even though consumer sentiment has improved in recent months, it is still languishing at levels prevailing during the depths of the financial crisis.
It will be hard for the market to regain much momentum in the near term since economic headwinds look set to remain relatively strong, with the labour market widely expected to weaken as the economy shrinks in the quarters ahead, while mortgage rates remain well above the lows prevailing in 2021.
In another sign that the housing market has slowed sharply, Persimmon, one of the UK’s biggest housebuilders, warned of lower profits this year and slashed its dividend by 75%. It made an underlying pre-tax profit of £1.01bn last year, up 4%.
There’s a slew of other data out today, and Bank of England governor Andrew Bailey will be speaking at a cost of living conference organised by the Brunswick Group and hosted at Coin Street Social Enterprise in London later this morning.
The latest quarterly FTSE reshuffle is expected to lead to the greeting cards retailer Moonpig and the betting firm 888 being relegated from the FTSE-250 index to the FTSE small cap.
The Scottish sausage skin manufacturer Devro may briefly enter the FTSE 250 after “a banger of a performance for shares” which surged following a cash offer for the company, said Susannah Streeter, head of money and markets at Hargreaves Lansdown. The results of the reshuffle, based on yesterday’s closing prices, will be announced later today, probably this afternoon.
The Agenda
-
8.15am GMT – 8.55am GMT: Spain, Italy, France and Germany S&P Global manufacturing PMIs for February
-
8.55am GMT: Germany unemployment for February
-
9am GMT: Eurozone S&P Global manufacturing PMI final for February
-
9.30am GMT: UK Mortgage approvals and consumer credit for January
-
9.30am GMT: UK S&P Global manufacturing PMI final for February
-
10.10am GMT: Bank of England governor Andrew Bailey speech
-
11am GMT: Italy GDP growth for 2023 (previous: 6.6%)
-
1pm GMT: Germany inflation for February
-
3pm GMT: US ISM Manufacturing PMI for February (forecast: 48)
