The Nationwide Building Society has this morning published its UK House Price data for August 2011. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.
The Nationwide says that the average price of a UK home is now GBP £165,914 (compared with GBP £168,731 in July 2011 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 10.8%% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of August 2011 being GBP £165,914 (or €188,312 at GBP 1 = EUR 1.135) is 4.21% above the €180,699 implied by applying the CSO July 2011 index to the PTSB/ESRI peak prices.
With the latest release from Nationwide, UK house prices have risen by 1.9%% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index is now at 854 (because only an estimated 20% of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK) meaning that average prices of NAMA property must increase by a weighted average of 17.1% for NAMA to breakeven on a gross basis.
The short-term outlook for UK residential, like the UK economy as a whole, remains bumpy. It seems as if UK interest rates will be held at historic lows for some time to come – the base rate which has been at 0.5% since February, 2009. Inflation remains above 4% per annum and is projected to finish 2011 at 4-5%. It’s worth pointing out that CPI inflation in the UK has increased by 13.3% (105.3 to 119.4) since October 2007 – the peak in house prices – no doubt as a result ofthe GBP 200bn of quantitative easing applied in the UK. Unemployment in the UK remains elevated (for it) at 7.7% – paradise compared with the 14.4% unemployment here. The UK has a 10% fiscal deficit which it is struggling to close.
Mortgage lending in the UK picked up in July 2011, but a report by the Land Registry indicated a declining pattern of transactions over the past year. On a regional basis, practically all regions of theUK have seen a decline in prices in the past year, with the exception of London. Personally I am sceptical of the much-vaunted Olympics effect on London house prices – the city has a large population which is increasing with a lot of new money coming on the market and housing supply is constrained and the Olympics is unlikely to affect that basic fact one way or the other. Remember though that the UK has had 4%+ inflation for most of the past year, so real declines nationally have been more marked than the nominal headlines.
So I would have said the outlook for London seems stable but that most of the rest of the UK has a choppy short term future, and even in London growth might be minimal or even negative when you strip out 5% inflation.
NAMA Wine Lake 
@ NWL £186,044 at Nov 2007 exchange rate was €262,418 (average monthly rate per Central Bank) versus say €181,000 now is a (€) decline of 31%. As much of the activity in the London market is driven by foreigners, you can see the attraction.
The US$ position is very similar. Using the Bank of England rate on 30/11/07 you get $385,129 versus $268,780 at £1-$1.62 this morning , a decline of 30.2% in USD terms.
UK prices look reasonable on those terms. To bring it back home, who ever imagined that sterling would be consistently below parity with the Ir£?
The (competitive) devaluation of steirling results in avg uk and irish property prices being quite similar. UK avg in Euro: 188k; IR avg in Euro 181k (your estimate).
That said, UK people are paid in uk money so they haven’t benefitted in terms of affordability. Given the state of the UK economy, falls in UK property prices can’t be ruled out. It may also explain the dearth of hordes of UK buyers coming here to snap up ‘bargains’.
@ AM The UK market outside of London appears very weak. The exchange rate position makes London as a world city more attractive to those with currencies other than sterling rattling around in their pockets. The continued weakness of markets depended on domestic customers shows the separateness of the London position.
UK tax treatment of non domiciled individuals is also an attraction. to High net Worth Individuals.
Further devaluation against the Euro looks probable as UK inflation looks like it is getting out of control. The Irish HICP rate is just 1% while the UK rate stands at 4.4%. The Irish CPI rate is 2.7% against the same measurement in the UK (called RPI there) is 5%. The differential on the HICP rate is particularly stark.
The problem with inflation and competitive devaluations is that in the long-term they may prove very difficult to control.
Don’t forget to allow for the increase of VAT in the UK by 2.5% in your inflation assumptions…
@ Peter I take your point about VAT, however as in Ireland the UK has a lot of exemptions. The experience in Germany and I am sure the UK will be similar is that indirect VAT increases tend to be phased in over a period. Sellers will at least temporarily absorb all or part of the increase. The ex VAT increase in the UK was 3.8% to July 2011, still well above the Irish rate.
It would appear that the UK are importing much of their inflation because of the currency weakness.