Nationwide’s Latest House Price Index Shows a 0.1% Decline in Prices

Nationwide's Latest House Price Index Shows a 0.1% Change in House Prices

The latest Nationwide House Price Index has revealed a 0.1% month-on-month fall in UK house prices in May, along with annual house price growth slipping back -3.4% from -2.7% in April. In this opinion piece, Paul Godbold looks at what Nationwide has to say and offers his outlook on the UK property market.

If media headlines are to be believed, the UK property market is in a less-than-rosy place, and any change to this in the near term seems unlikely. In addition, interest rate rises, global economic uncertainty and stubbornly high inflation, coupled with gloomy predictions, are all contributing to keeping the market in a somewhat subdued mode, or as I like to call it, a slightly downward holding pattern.

An image showing the latest UK house price data from the lender

The latest Nationwide data shows a slight fall in house prices of 0.1%. Regarding this, Nationwide’s Chief Economist, Robert Gardner, said in his official statement, “Following tentative signs of improvement in April, annual house price growth softened again in May, falling back to -3.4% (from -2.7% in April). However, this largely reflects base effects, with prices broadly flat over the month after taking account of seasonal effects. Average prices remain 4% below their August 2022 peak.

Nationwide's Chief Economist, Robert Gardner.
Robert Gardner.

“Recent Bank of England data had shown some signs of recovery in housing market activity, although the number of mortgages approved for house purchase in March was still around 20% below pre-pandemic levels.

“Moreover, headwinds to the housing market look set to strengthen in the near term. While consumer price inflation did slow in April, it was a much smaller decline than most analysts had expected. As a result, investors’ expectations for the future path of the Bank Rate increased noticeably in late May, suggesting it could peak at c5.5%, well above the c4.5% peak that was priced in around late March.

“In our view, a relatively soft landing remains the most likely outcome since labour market conditions remain solid and household balance sheets appear in relatively good shape.

“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”

What I see happening with UK house prices
I believe that the falls in house prices have almost reached their peak. Last year, I wrote an article stating that UK house prices would fall 5% in 2023, and I am still keeping to that.

Here are a few of the reasons why I believe the market will be more resilient than some are stating:

As more doom and gloom is spouted regarding the market, fewer people will be inclined to put their homes up for sale. At the same time, the desire for home ownership will remain high. Less property for sale will enable sellers to maintain reasonable asking prices. Although the number of transactions will decrease over the forthcoming months, property sold prices should remain relatively static.

A young woman working from home

Another reason why there is likely to be less property for sale stems from something that happened three years ago. A global event resulted in a drastic seed change in the UK’s working environment, namely, many more people choosing to work from home.

Unlike the pre-pandemic days when people felt they needed to move for their job, today, it is far less of a pressure and again, sellers will likely choose to stay put if the outlook is looking gloomy and there is no pressure to move.

The final reason I think house prices will not decline as much as some ‘self-professed’ experts are stating comes from a lack of options. This pertains specifically to the cash-rich in society.

Many reading this would probably think that having a decent amount of cash in the bank results in a stress-free life with little to worry about. That’s far from the case in this day and age, and the reason comes down to protecting it.

Growing up, many will have had it drilled into them to save money (for a rainy day), try not to have any debts and put the money in the bank where it will be safe. Up until a decade or so ago, this rang true. However, things have changed…

Undoubtedly, many reading this will have seen or heard of banks in the USA going out of business and UBS being forced to take over its rival, Credit Suisse. The major worry is this might not be an isolated problem as many reports are showing that 100s of banks, possibly more than 1000, are now insolvent. The same problems that affected the USA, Germany and Switzerland could strike at any time in any country.

With that in mind, many people are now pulling their funds out of the banks and looking to put it somewhere they feel is safer.

In the USA, investors can put their cash into money market funds, the same places the US banks do. However, people in the UK do not have the same advantages as their American counterparts.

Two men discussing the performance of stocks and shares

Another option is stocks and shares, but given the current global economic turmoil, many would be wise to steer clear. Then there are the cryptocurrencies. However, I see major warning signs with this option, too, as governments are looking into creating their own digital currencies, and all it takes is some clever coding from them to make it almost impossible to transact non-governmental currencies, which would result in drastic reductions in value.

In addition, and major price fluctuations with cryptocurrencies aside, one only needs to look up what happened to FTX to see how risky this type of investment can be.

Stacks of gold coins

One of the tried and tested areas to be in is precious metals, particularly gold which is true money and physical, unlike the summon-out-of-thin-air FIAT currencies we’re all used to. However, gold prices are currently sitting just below their all-time high, and people will be nervous about buying into something when it is potentially in and around its peak.

Additionally, there’s the problem of where to store the gold coins, and I mention coins in particular, as trying to spend a gold bar would be virtually impossible; what do you do with it? Shave a bit off here and there?

The most sensible option
In my opinion, the only other safe option is good old ‘bricks and mortar’, a physical asset that historically appreciates in value over time and will offer a potentially decent return (via rental) in times of uncertainty.

There is a surprising number of British and foreign fully cash buyers actively looking for somewhere to place their money. It is these, along with people fed up with seeing their hard-earned savings being eroded through inflation, that will help keep UK property prices in the aforementioned holding pattern until the global economy begins to strengthen.

I’m not forecasting any rise in property prices this year; I do see prices falling by small amounts, 0.2% here and 0.3 there, for the remainder of 2023 and possibly into the early part of 2024. The safety net with property is that should the global economy hit a catastrophic phase (aka meltdown), a property (a physical asset) will not lose all of its value, which some of the aforementioned alternatives may do, plus it can generate an income.

The UK government will want and needs a relatively stable property market. When property prices are static or rising, people are more open to spending; when prices fall, many people will bring down the shutters, and the wider economy suffers.

One thing that will always be present while there is property for sale is a demand to own one, and I believe the government will do all it can to keep the market relatively healthy. It is these things that prevent me from joining in with thinking a catastrophic crash in UK property prices is on the horizon.

Read more property news, guides and opinion pieces here.

A couple looking up house prices on their computer in readiness of a moveNationwide's Latest House Price Index Shows a 0.1% Decline in Prices 2

Paul Godbold

Founder, Editor-in-Chief

Paul is the owner and editor-in-chief of Luxurious Magazine. He previously worked as a fashion model, was in the British Army and created companies in the technology, venture capital and financial services sectors. In addition to writing, he also proofs, edits, designs, lays out and publishes all the articles in the online magazine. Paul is a full member of the Chartered Institute of Journalists.

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