The latest sign of how the coronavirus epidemic has affected the property market is that the government has suspended reporting of the house price index with the publication of March figures.
Monthly house price inflation in the UK is calculated using data from HM Land Registry, Registers of Scotland, and Land and Property Services Northern Ireland.
But in an indication of how the coronavirus epidemic has affected the property market, reporting has been suspended until further notice.
A comprehensive statement last week explained that the effect of the coronavirus pandemic on the housing market had been to freeze the market.
“House price statistics are particularly affected by the current situation. The number of transactions in April is expected to have been much lower than normal making it very difficult to estimate meaningful average price statistics. As a result, the Office for National Statistics plans to temporarily suspend publication of the UK House Price Index after March’s figures have been released” said the statement.
The same announcement warned that figures from the Bank of England suggest that the effect of the coronavirus epidemic on house prices could be that house prices could fall by as much as 16 percent in the short term a figure comparable with the decline in residential property values in the 2008-9 credit crunch.
The good news is that the Bank of England does not think that the effect of the coronavirus epidemic on house prices will be long-lasting, and that it will recover systematically as the economy picks up and unemployment falls.
The announcement follows the Halifax’s statement on the effect of coronavirus on house prices, suggesting that house prices had fallen by 0.6 percent in April, reducing the annual rate to 2.7 percent.
According to the ONS statement, UK average house prices increased by 2.1 percent over the year to March 2020, up from 2.0 percent in February 2020.
Average house prices increased over the year in England to £248,000 (2.2 percent), Wales to £162,000 (1.1 percent), Scotland to £152,000 (1.5 percent) and Northern Ireland to £141,000 (3.8 percent).
London’s average house prices increased by 4.7% over the year to March 2020; this is the largest 12-month growth London has seen since December 2016. But the effect of coronavirus on house prices has been chilling, to the extent that the UK House Price Index will be suspended until further notice from the April 2020 index (due to be released on 17th June 2020).
The Office for National Statistics (ONS) has released a public statement on the coronavirus (COVID-19) epidemic and the production of statistics on house prices; the Measuring the Data section describes the situation in relation to the UK House Price Index (HPI). The collection of prices for this publication has been partially affected.
Because of the introduction of government measures to reduce the spread of the coronavirus (COVID-19) in March 2020, fewer transactions were available than expected for the March UK HPI. As a result, the ONS says that there may be increased volatility in this month’s estimates, particularly at the lower geographical levels where transaction volumes are smaller.
The UK House Price Index (HPI) is based on completed housing transactions. Typically, a house purchase can take six to eight weeks to reach completion. Therefore, the price data feeding into the March 2020 UK HPI will reflect those completions that occurred before the government measures to reduce the spread of the coronavirus (COVID-19) took hold.
Effect of epidemic
Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England, but there has been a pick-up in annual growth since December 2019. Northern Ireland data are only available on a quarterly basis.
London was the English region with the highest annual house price growth, with prices increasing by 4.7 percent to £486,000 in the year to March 2020, up from 3.0% in February 2020.
The lowest annual growth was in Yorkshire and The Humber, where prices decreased by 1.0 percent over the year to March 2020.
Despite the effect of the coronavirus epidemic on house prices, London house prices remain the most expensive at an average of £486,000. The North East continued to have the lowest average house price, at £127,000, but is the only English region yet to surpass its pre-economic downturn peak of July 2007.
The report on the effect of the coronavirus epidemic on house prices suggests that increased London house price growth may reflect more sales of very high value property. It says: “There is some anecdotal evidence to suggest that the period between December 2019 and March 2020 has brought more certainty to the market than in previous quarters, which may have boosted transactions at the top end of the price scale. The Royal Institution of Chartered Surveyors (RICS) stated that the improvement in market sentiment in the first two months of the year built on a pick-up in the market following the General Election.”
Property prices are generally higher in inner London than outer London – in Quarter 1 (Jan to Mar) 2020, average prices were £588,700 in inner London and £424,200 in outer London. There was a slight increase in the proportion of properties sold over £900,000 in outer London in Quarter 1 2020.
For outer London, the proportion of transactions in the lowest two price brackets (£600,000 and under) decreased by 3.1 percentage points between Quarter 1 2019 and Quarter 1 2020. Outer London also saw a slight increase in the proportion of transactions over £900,000, from 6.1% in Quarter 4 (Oct to Dec) 2019 to 7.3% in Quarter 1 2020.
The UK House Price Index (HPI) is a joint production by HM Land Registry, Registers of Scotland, Land and Property Services Northern Ireland, and the Office for National Statistics (ONS). HM Land Registry publishes the main publication of the UK HPI on the GOV.UK website.
The standard average house price is calculated by taking the geometric mean price in January 2015 and then recalculating it in accordance with the index change back in time and forward to the present day. The UK HPI applies a hedonic regression model that uses the various sources of data on property price and attributes to produce up-to-date estimates of the change in house prices in each period.
As sales only appear in the UK HPI once the purchases have been registered (based on completed sales rather than advertised or approved prices), there can be a delay before transactions feed into the index. Estimates for the most recent months are provisional and likely to be updated as more data are incorporated into the index. While changes to estimates are small at the headline level, these can be larger changes at lower geographies owing to fewer transactions being used. Caution is therefore advised when interpreting price changes in the most recent periods.
On the effect of the coronavirus epidemic on reporting of house prices, the ONS stated that it is “working to ensure that the UK has the vital information needed to respond to the impact of the coronavirus (COVID-19) pandemic on our economy and society, this includes how we measure the UK House Price Index. The price collection for this publication has been affected. As a result, there may be increased volatility in this month’s estimates, particularly at the lower geographical levels where transaction volumes are smaller.
“The ONS remains committed to providing the best and most accurate information we can, serving the public good at a time when it is needed the most. The ONS and the joint producers have taken the decision to temporarily suspend the UK House Price Index (HPI) publication from the April 2020 index (due to be released 17 June 2020) until further notice.
“The impact of the coronavirus is expected to greatly reduce the amount of housing transactions that took place in April 2020, making it very difficult to produce a measure of UK house prices that would be representative of any true transaction activity within the housing market.
“We will continue to closely monitor the flow of transaction data and carry out analysis to assess the impact of the coronavirus on the House Price Index, including deciding on the best approach to reinstate the UK HPI as early as is practicable. We will ensure that users of the UK HPI are kept informed of the plans for reinstatement.”
Go here for more information on how the coronavirus epidemic has affected house prices and why the government has suspended reporting of the house price index with the publication of March figures.