What next now that London’s home price growth has flatlined?

LONDON: The eight-year bull run for London home values appears to be finally coming to an end.

Values fell 0.5% in May from April, according to the LSL Acadata Home Price Index, and will show little or no growth this year, broker Savills Plc forecasts.

PricewaterhouseCoopers LLP predicts that price growth will continue to slow in 2018 and 2019 as economic uncertainty and increased stamp duty taxes damp demand.

Bloomberg News asked seven market commentators to predict what they see happening next in London’s £1.6 trillion (US$2.1 trillion) housing market.

Paul Cheshire, professor of economic geography at The London School of Economics and Political Science:

“The turning point is just being reached. Housing prices have continued to rise relative to incomes and the affordability ratio is now at an all-time low. Real incomes are falling as the weakness in the pound feeds through to higher inflation.

“The ability to raise wages isn’t there and Brexit is making everything more uncertain and worse. London is the epicentre of the UK housing market and changes in prices there tend to ripple out. I’m expecting a sharp correction in housing, more on the level of the 1990 crash.

“I don’t expect negative equity to be as big of a problem as it was then, and interest rates may rise but will still remain low by the standards of the early 1990s.”

Home values fell about 32% in London from 1989 through 1992, according to data compiled by Nationwide.

Lucian Cook, head of residential research at Savills:

“London house prices look to be coming toward the end of a long bull run, having significantly outper- formed the rest of the UK for over 10 years, but a correction is not expected. High pricing means that mainstream-market buyers are hitting up against the constraints of who can borrow, how much they can borrow and where they can buy.

“That means the market is more exposed to changes in sentiment than the rest of the UK. It also means when interest rates rise, they will have a greater impact on affordability.

“But with any rate rise expected to be gradual, we do not expect any significant downward pressure on prices. For now it looks like we revert to more of a lower transaction needs-based market.”

Neal Hudson, founder of researcher Residential Analysts:

“The most likely outcome is that prices remain high with minimal growth over the next couple of years but with much lower turnover. That means fewer buyers due to stretched affordability but also fewer sellers as homeowners can happily sit tight due to low mortgage rates.

“That said, there are growing downside risks: London is most exposed to any rise in rates which would most affect boroughs with large numbers of recent first-time buyers.

“Meanwhile the oversupply of top-end new build and any job losses due to Brexit may exacerbate any falls in prices and rents in more central boroughs.”

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (RICS):

“The latest RICS indicators provide little reason for believing that the softer trend in sales activity across the capital, which has been visible since the spring of last year, will reverse anytime soon.

“New buyer inquiries have lost some of the momentum that was visible previously, with any number of factors being highlighted by respondents to our monthly survey as contributing to this trend including stretched affordability, a more challenging tax regime, lack of choice, political uncertainty and, now, concerns about the outlook for interest rates.

“For a while, the more subdued tone was primarily concentrated in our higher-end market metrics but it does now appear to have spread to the wider market.

“This is also being reflected in more modest gains in house-price inflation and, if our key forward-looking indicators are anything to go by, all bar the most affordable parts of London could see prices flatline over the coming months.

“Indeed, there is a possibility that some locations in the capital will see modest price falls following a period of very strong gains.” — Bloomberg