After all the fear and uncertainty around Brexit, there is finally some good economic news: The U.K. housing market made huge strides in September and is getting stronger every day. A growing number of real estate agents reported appreciating home prices, and the Royal Institution of Chartered Surveyors’ house price gauge rose to 17 from 13 in August. Things are definitely looking up in the real estate world.
Fears Set Aside
The first half of 2016 was rocky at best for the UK housing market, as a tax surcharge on investment properties and the surprising Brexit vote kept people away from buying houses. After the Brexit referendum, many experts predicted that housing prices would fall drastically and that the housing market would stall. However, after a small post-Brexit slip, the economy seems to have recovered and wasn’t nearly as volatile as many people predicted. That, paired with record-low mortgage rates after the Bank of England’s interest rate cut, have once again brought homebuyers to the UK. In September, new buyer inquiries grew for the first time since February.
“The market does now appear to be settling down following the significant headwinds encountered through the spring and summer,” said Simon Rubinsohn, RICS chief economist. “Buyers do appear to be returning, albeit relatively slowly, but the big issue that continues to be highlighted by respondents is the lack of fresh stock on the market.”
According to the Office of National Statistics, the average home price in the country was 219,000 in August, a 1.4% jump from July and 8.4% higher than this time last year. Although September data is not yet available, experts predict that house value will continue to grow at a faster pace for the rest of the year as buyers return to the area.
Potential buyers are gaining confidence in the housing market, and it shows in the transaction data. Shortly after the Brexit vote in June, confidence in the housing market reached a low not seen since the 1990s, but the numbers have recovered in the following months and once again seem to be gaining steam.
One of the reasons for the increased home prices is the relative lack of available homes for sale—the number of available homes has plummeted since 2015, making the market more competitive and expensive. There’s also the recent depreciation of the pound, which has made the UK much more affordable and desirable for overseas investors. For people looking to purchase property in the UK from other countries, now is a very attractive time due to the low exchange rate.
Although home prices are increasing around the country, they are declining in central London, which has the most expensive real estate in the country. In fact, London is the only region where home prices are not predicted to grow over the next 12 months. The lack of affordable housing in London is a concern for economic and government leaders, but the mayor continues to be resistant to build on the greenbelt and increase affordable housing.
“Central London remains something of an outlier with contributors telling us this is the one part of the market where there may be further give on prices in the near term,” Rubinsohn said. “Elsewhere, the price trend still seems on the up.”
Prior to Brexit, London real estate prices had been skyrocketing at a rate much faster than the inflation rate, which was part of the reason home ownership rates are at the lowest they’ve been in nearly 30 years: the younger generation simply can’t afford to buy a home, especially not in London. Now that prices aren’t appreciating as much, perhaps London can finally have a chance to catch up to the rest of the real estate market.
Although things are looking up for UK real estate, the industry might not be out of the woods yet. For one, there is the issue of unequal supply and demand. Previous efforts to assist low-income households appear to have increased demand and prices without the growth in supply to match. A new administration is working to correct the problem by removing tax breaks, but the effects of that are yet to be seen. September’s numbers are good news, but it could still take time for the entire housing industry to rebuild.
The real estate market and buyer confidence is typically a good sign for the health of the overall economy. Although UK’s housing market isn’t without flaws, its strong performance is a good sign for the region in a post-Brexit world.