The “race for space” sent U.K. house prices soaring to their highest level in nearly seven years in May, as the COVID-19 pandemic encouraged people to move to bigger properties in less urban areas.
Annual house price growth reached double digits in May, rising 10.9% year-over-year, to a record average price of £242,832 ($344, 433), data from mortgage lender Nationwide Building Society showed on Tuesday. Monthly, prices were up 1.8%, following a 2.3% rise in April.
Robert Gardner, Nationwide’s chief economist, said shifting housing preferences were continuing to drive activity as people reassessed their needs in the wake of the pandemic. “Of those moving or considering a move, around a third were looking to move to a different area, while nearly 30% were doing so to access a garden or outdoor space more easily,” he added.
The strong figures from the housing market lifted the housebuilding sector. Taylor Wimpey’s
shares rose 1.40% in early morning London trading on Tuesday, while Barratt Developments’
stock was up 1.84%, and Berkeley Group
increased 1.03%. Shares in Persimmon
Bank of England deputy governor Dave Ramsden said in an interview published in the Guardian on Tuesday that the central bank was carefully monitoring the U.K.’s booming housing market, as it weighs up the possibility that a rapid recovery from the COVID-19 pandemic will lead to a sustained period of inflation.
“There is a risk that demand gets ahead of supply and that will lead to a more generalized pickup in inflationary pressure. That’s something we are absolutely going to guard against. We are looking carefully at the housing market and a raft of real-term indicators,” Ramsden told the Guardian.
The supply-and-demand imbalance is also in focus in the U.S., where home-price gains continue to accelerate. Home prices in the 20 major metropolitan areas tracked by the S&P CoreLogic Case-Shiller 20-City Composite Home Price index grew 13.3% annually in March, according to data released last week. Monthly, home prices were up 1.6%.
Nationwide’s Gardner said there was scope for annual house price growth to accelerate further in the coming months, as a result of the stamp duty holiday extension — stamp duty is a property tax on buyers and the government has temporarily lifted it as part of its pandemic response. Gardner also mentioned additional support for the labor market included in the Chancellor of the Exchequer’s budget, especially given continued low borrowing costs and improving credit availability.
But he cautioned that, if unemployment rises sharply later in 2021, there was scope for activity to slow, perhaps sharply. “Though even this could potentially be offset by ongoing shifts in housing preferences, if current trends are maintained,” Gardner noted.