Acadata Wales House Price Index JULY 2015 STRICTLY UNDER EMBARGO UNTIL 00.01 WEDNESDAY 23RD SEPTEMBER 2015 June decline reversed - prices rise by +0.4% or £710 this month Prices in Gwynedd rise by 11.3% annually Highest number of transactions in a July since 2007 Wales has lowest annual change in house prices compared to the regions of England House Price Index Monthly Change % Annual Change % £163,389 250.2 0.4 2.1 Table 1. Average House Prices in Wales for the period July 2014 – July 2015 link to source Excel House Price Index Monthly Change % Annual Change % July 2014 £159,985 245.3 0.0 5.0 August 2014 £162,239 248.5 1.4 5.7 September 2014 £162,809 248.9 0.4 4.7 October 2014 £164,547 251.2 1.1 4.8 November 2014 £164,022 251.0 -0.3 4.6 December 2014 £164,252 251.5 0.1 4.2 January 2015 £164,706 252.2 0.3 3.9 February 2015 £165,905 254.0 0.7 3.7 March 2015 £166,041 254.3 0.1 3.8 April 2015 £164,318 251.6 -1.0 2.9 May 2015 £163,404 250.2 -0.6 3.0 June 2015 £162,679 249.1 -0.4 1.7 July 2015 £163,389 250.2 0.4 2.1 Acadata Wales House Price Index – July 2015 1 Commentary by Dr Peter Williams Dr Peter Williams, housing market specialist and Chairman of Acadata, comments: This month saw a reversal of June’s downward monthly tick of -0.4% by recovering that ground, so that the seasonally- adjusted average price of a house in Wales was £163,389 in the month, an increase of £710 (+0.4%). This positive movement means that there have been falls in four of the last twelve months, and rises in eight. The average monthly change over that period was +0.2%. However, if we consider the six months August to January, that average was +0.5%, whereas for the last half year it fell to -0.1%. On an annualised basis, prices have remained positive over the last year, ranging from a rise of +5.7% in August 2014 to the smallest change of +1.7% last month. The average of those changes over the twelve month period was +3.8%, but as with the monthly rate of change, the last six months average of +2.9% is less than the previous six months figure of +4.7%. As well as prices, the number of transactions in Wales has also seen an increase this month, and we will look at this in more detail later. This increase may well have to do with the specifics of competitive lending rates available as well as the generally good prospects for the economy. We also look later at the relationship between price and transaction rates of change. From Figure 1 below we can see the way in which, whilst the upward trend (black line) has been maintained over the last thirteen months, there have been significant monthly variations (in red). The period from July 2014 to October of that year saw only positive changes: after a fall in November, December onwards then saw the rise continue to its peak in March, thereafter falling to a low in June, followed by the uptick in July. For comparison’s sake, the July change in England & Wales as a whole was also +0.4%: however, the equivalent annualised rate for the country as a whole was +4.2% in that month, as opposed to the +2.1% for Wales alone. In addition, Scotland’s monthly rate was also +0.4% in July: however, there the annualised rate of change was -0.1%. Average House Prices in Wales July 2014 - July 2015 £167,000 £165,000 Wales £163,000 12 month trend £161,000 £159,000 Figure 1 Average house prices in Wales, July 2014 – July 2015 link to source Excel When considering the rate of change in house prices in England & Wales as a whole, the effect of London and the South East remains an important consideration, and while the inflationary effect of London itself may have diminished somewhat over the last three months, the influence one way or another of both the capital as well as the South East generally needs to be considered. In this context, Figure 2 below indicates the past divergence and current convergence of prices both with and without London and the South East. There are indications now however that the decline in the rate of inflation in London may be near or at a bottom point, in which case the blue trace on the chart may well change direction once more. We can also see the relative upwards movement of the prices in Wales compared to the rest of the country. It is interesting to note that although the overall picture over the past twelve months for all areas has been one of a rise and fall, the monthly fluctuations in Wales are more obvious - this volatility is something we have remarked on in the past, and will continue to monitor. We also look at the potential relationship between price and transactions at the end of this report. Acadata Wales House Price Index – July 2015 2 Commentary by Dr Peter Williams In July and at the upper end of the scale, the most expensive properties sold in Wales were one in Porthmadog at £1.5 million, one in Pontyclun at £1 million and one in Penarth, also at £1 million. Seven others were priced at over £700k. For comparison’s sake, the most expensive property sold in London in July was priced at £12.9 million (figures from Rightmove). Annual House Price Growth Wales vs England & Wales inc/exc London and South East 12.0 10.0 E&W including 8.0 London & SE E&W excluding 6.0 London & SE 4.0 Wales 2.0 Annual % % Annual inchange prices house 0.0 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Figure 2. Annual change in average house prices August 2013 - July 2015, Wales compared to E&W inc/exc London and South East link to source Excel In the league of regional annual house price change over the last three months, as charted in Figure 3 below, Wales remains the region with the lowest rate at +2.1% (compared with +1.7% last month). The region at the top of the table for the second month running is East Anglia at +5.9%. Note that these changes are all positive, and it is necessary to go back to July 2013 to see negative change - which was in fact in Wales. Summarising, the rate of annual house price growth this month compared to last has fallen in seven regions, with Wales being one of the only three regions with rises - the others being the North and the South West. Average Annual Change Over Last Three Months East Anglia 5.9% 6.3% East Midlands 5.8% 6.1% South East 5.8% 6.2% South West 5.6% 5.2% ENGLAND & WALES 4.2% 4.4% Yorks & Humber 3.6% This month 3.6% Last month West Midlands 3.5% 4.7% North West 2.6% 3.3% Greater London 2.5% 2.5% North 2.2% 1.5% Wales 2.1% 1.7% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Figure 3. Annual change in average house price by region link to source Excel Acadata Wales House Price Index – July 2015 3 Commentary by Dr Peter Williams One important aspect of the house-purchase process is affordability, a subject often not given enough consideration when looking at prices in any given market. Affordability is of course particularly important to the first time buyer, who may well be struggling to find enough cash for the initial deposit. For all that, research from the Principality Building Society suggests that many first time buyers think smartphones and a regular coffee shop fix are more important than getting on the housing ladder. This is a concern when the earnings/price ratio is increasing (up to around nine in England & Wales as a whole in popular areas with good schools for example - source FT/Lloyds Bank), and with many lenders capping loan-to-income multiples at around 4.5/5.0. The result in effect makes house purchase unaffordable for the average single person - and particularly for the first time buyer. And depending on area, this can also exclude households with more than one earner. In addition, the current rate of house price inflation still outstrips that of wages, which exacerbates the problem. The importance of first time buyers generally can be gauged from recent CML (Council of Mortgage Lenders) figures, which show lending to the sector in England & Wales as a whole is up by +7% year-on-year, July 2014 to July 2015, equivalent to a loan value of £4.6 billion. This was the highest first time buyer lending by level and volume since August 2007. In Wales, Q2 lending to this sector was up +29% on Q1, although down by -6.1% when compared with Q2 2014. The typical loan size was £99k with a LTV ratio of 85%. For comparison, the reduction in the number of flat-purchase transactions (typical first time buyer territory) was -25% down in Wales comparing Q2 2015 to Q2 2014. The prospect of a relatively early rise in interest rates must also be considered, which has caused a considerable surge in remortgage activity.