Annual House Price Growth Slowest in Nearly Four Years

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said:

“House prices recorded their second consecutive monthly fall in April, while the annual rate of growth slowed to 2.6%, the weakest since June 2013. “In some respects, the softening in house price growth is surprising because the unemployment rate is near to a 40- year low, confidence is still relatively high and mortgage rates have fallen to new all-time lows in recent months.

“While monthly figures can be volatile, the recent softening in price growth may be a further indication that households are starting to react to the emerging squeeze on real incomes or to affordability pressures in key parts of the country.

Are households feeling the pinch? “Various data suggest that the latest slowdown in house prices may be part of a broader trend. Retail sales growth has slowed markedly in recent months, from a 14-year high of 7.3% in October, to 3.7% in February and 1.7% in March. “Household budgets are coming under pressure, as wage growth has moderated and inflation has accelerated.

The household saving ratio, which measures how much income goes unspent each quarter, fell to an all-time low of 3.3% in Q4 on data extending back to 1963. “There may also be more fundamental reasons for the slowdown. House price growth has been outstripping earnings growth for a sustained period, steadily eroding affordability on a number of metrics. For example, the typical house price is currently 6.1 times average earnings, well above the long run average of 4.3 times earnings, and close to the all-time high of 6.4 times recorded in 2007. “Moreover, even though mortgage interest rates have touched new lows in recent months, the cost of servicing a typical mortgage is only just in line with long run average, and above long run averages in London and parts of the South of England.

It may be too soon to write off the UK consumer just yet…. “However, there are also data that caution against writing off the UK consumer just yet. While retail sales have slowed markedly, spending in other areas, including big ticket items like cars, has remained robust. “Even though house price growth has softened, activity has remained broadly stable, with mortgage approvals for house purchase steady at a respectable 68,000 per month, a little above the average prevailing in recent years.

“While wage growth has stagnated in real terms (i.e. after taking account of inflation), the number of people in work is close to all-time highs. “Indeed, despite the pressure on household income, consumer confidence remains fairly high by historic standards. “While the savings ratio has fallen to historically low levels, household balance sheets are in pretty good shape. Net wealth remains high, due to steady increases in asset prices (including house prices), which reduces the immediate need to save and provides a cushion for households.