London pushes UK house prices up

By Leith van Onselen

UK house prices are reportedly on the increase again, with prices hitting a five-year high in March, driven by strong growth in London, according to Acadametrics LSL:

London’s property market powered a seventh month of increases in U.K. house prices in March as values reached a five-year high, according to Acadametrics Ltd.

The average cost of a home in England and Wales rose 0.2 percent on the month to reach 230,078 pounds ($354,000), Acadametrics and LSL Property Services Plc (LSL) said in a monthly report published in London today. Excluding the capital, prices fell 0.1 percent on the month…

Excluding London from the annual house-price increase of 3 percent would leave the average rise nationally at 0.5 percent, LSL and Acadametrics said. The 2.5 percentage-point divergence is the largest recorded since they began monitoring this effect in July 2005.

The report also showed that home values in London rose 11.3 percent in the past three months compared with the same period a year earlier. The average across England and Wales was 3.7 percent. In the north of England, prices fell 1 percent.

While it is true that UK house prices are increasing, the major providers of UK house prices are in disagreement as to the strength of the recovery.

Acadametrics (a.k.a. FT HPI), which provides the broadest possible measure of UK home prices since it averages all sales lodged with the UK Land Registry, is showing the strongest gains, with prices on average across the UK fully recovering their post-GFC losses, and prices in London now 17% above the previous peak.

By contrast, Halifax and Nationwide, which draw on smaller samples but use hedonic regression (adjustment for like-for-like sales) to remove compositional bias are recording prices still -19% and -10.5% below peak respectively at the national level, with prices still down -17% in London according to Halifax, but 1% above the prior peak according to Nationwide (see next chart).

In real (inflation-adjusted) terms, all three data providers are recording prices below the previous peak at the national level, with real losses ranging from -32% (Halifax) to -15% (Acadametrics):

With both the demand for, and access to, credit likely to be boosted significantly by both the Funding-for-Lending Scheme and the £130 billion Help to Buy Scheme, and minimal action being taken to free-up the UK’s rigid urban planning system, UK house prices are likely to continue to post solid gains in the year ahead.

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