This is the monthly UK House Affordability update, which is the metric that I believe is the key driver of UK House Prices. It also updates UK House Value which is the metric I am using to assess when it is time to buy a UK home and Sales Volumes. The last update can be found here.
Let’s first update the key data being used to calculate both UK House Value and UK House Affordability plus report on Volumes:
- UK Nominal House Prices. There are numerous UK House Price Indices which each measure something different. This analysis has always used the Nationwide Historical House Price dataset which measures the price of a Standard House and so this month we stay with that for consistency. March 2013 house prices were reported as £164,630. Month on month that is a rise of £1,992 (+1.2%). Year on year also sees an increase of £1,303 (+0.8%).
- UK Real House Prices. If we account for the devaluation of the £ through inflation (the Retail Prices Index) we see a different picture. Month on month that increase of £1,992 turns into an increase of £810 (+0.5%). Year on year that £1,303 increase turns into a decrease of £4,525 (-2.8%). In real terms prices are now back to those around January 2003.
- UK House Sales Volume. Sales volumes according to the Land Registry were 53,860 in December 2012. Month on month that is a fall of 14.0% and year on year a fall of 15.3%. Volumes are now 40% of peak sales in May 2002 and 66% of the dataset average volume.
- UK Nominal Earnings. I choose to use the Office for National Statistics (ONS) Average Weekly Earnings KAB9 dataset which is the seasonally adjusted average weekly earnings of both the public and private sector including bonuses. January 2013 sees earnings at £470. Month on month that is a nominal decrease of £2 (-0.4%). Year on year sees a nominal increase of £5 (+1.1%). With inflation (the Retail Prices Index) running at 3.3% over the same yearly period the purchasing power of those that work continues to be eroded.
- UK Mortgage Rates. The proxy I use to monitor mortgage interest rates is the Bank of England dataset IUMTLMV which is the monthly interest rate of UK resident banks and building societies sterling Standard Variable Rate (SVR) mortgage to households (not seasonally adjusted). February 2013 sees a mortgage rate of 4.4% which is flat month on month and year on year is an increase of 0.26%. While this metric sees mortgage rates increasing a number of mortgages are seeing falls largely because of the Funding for Lending Scheme (FLS). 2, 3 and 5 Year Fixed Rate Mortgages with high 25% Loan to Value Ratios (LTV) requirements have seen year on year falls of between 0.5% and 0.59% and at 2.87% for a 2 year effectively mean negative real interest rates.