Several indicators suggest housing market is cooling
Has the housing bubble burst? There have been some contrasting views of the construction industry over the last couple of weeks with several sentiment indicators suggesting the housing market is cooling.
The RICS Housing Market Survey detected new buyer inquiries falling for the fourth consecutive month. House price growth also slowed, according to the Office for National Statistics (ONS), Nationwide and Halifax.
Against this backdrop the latest ONS construction output figures attracted headlines when they showed increasing activity in the housing sector. Private housing increased by 18.9% in the third quarter of 2014 compared to the corresponding period of 2013. Public housing output was also significantly higher with an increase of 35.2% recorded compared to 2013.
In addition, the latest edition of the Barbour ABI Economic & Construction Market Review shows that contracts awarded in the housing sector are 34.2% higher than October 2013.
So what is really going on in the UK housing market at the moment? There is no doubt that activity has cooled in London in recent months as stricter lending rules for larger properties have come into full effect.
However, the latest data from Nationwide shows that annual house price rises in the capital are 21% for Q3 compared to 4.3% in the north of England.
To put this in context house price inflation was 25.8% in London last quarter and 8.1% in the north of England.
While price growth in the housing market overall has undoubtedly slowed, the new build market continues to surge, as the latest ONS and Barbour ABI figures demonstrate.
One would imagine most house builders would view the overall growth in house prices positively, even if the rate is slowing.
With both major parties likely to commit to maintaining help for first-time buyers in some shape or form after the general election, the outlook for housebuilding in the UK remains bright over the next few years.
With most housebuilders, including Persimmon and Barratt, already reporting significantly higher future build plans to meet buyer demand, I expect activity in the sector to continue to increase.
Michael Dall is an economist at Barbour ABI