UK house
prices increased by 0.4% in July, and as a result the annual pace of house
price growth edged up to 3.5% from 3.3% in June. After moderating over the past
twelve months, there are tentative signs that annual house price growth may be
stabilising close to the pace of earnings growth, which has historically been
around 4%.
This would
bode well for a sustainable increase in housing market activity, though whether
this will be maintained will depend on whether building activity can keep pace
with increasing demand.
The outlook
on the demand side remains encouraging. Employment growth has remained
relatively robust in recent quarters, and, after a prolonged period of subdued
growth, wage growth is also edging up. With consumer confidence buoyant and
mortgage rates still close to all-time lows, demand for housing is likely to
firm up in the quarters ahead.
It remains
unclear whether activity on the supply side will catch up with demand. The
number of new homes under construction has started to pick up, albeit from
historically low levels, and further increases are required if a sustainable
recovery in the housing market is to be maintained over the longer term.
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