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UK house price indicators

To find out where Britain's house prices are heading next, we've hunted down what we believe are the best leading indicators for Britain's housing market. And for now, they mostly suggest that prices are heading for further falls.

We watch five indicators, all of which have proved useful guides in the past. These include the RICS Housing Market Survey and data on both mortgage lending and mortgage approvals. Consumer confidence is another useful data point we keep an eye on.

You can read in detail what each indicator suggests for UK house prices using the tabs above.
The RICS Housing Market Survey is arguably Britain's best house-price predictor. It's a monthly measure of how many surveyors are seeing UK house prices rise compared with those reporting falls.

What's the latest? July's RICS balance fell to 49, ie, 49% more surveyors saw prices rising than falling. The July Halifax UK three-monthly house price index saw a 10.2% year-on-year rise.

What does this mean for UK house prices? The RICS survey leads the Halifax index by around six months. With a balance of 49%, will Britain's housing market keep climbing?
The Bank of England provides monthly data on UK net mortgage lending growth (NMLG). Historically this has proved a handy guide to house prices.

What's the latest?June saw UK NMLG rise to 2.2%. That compares with annual growth of 1.9% two years ago, 5.7% in December 2008 and 11.1% in February 2007. Meanwhile, the August Nationwide UK house price index is 11.0% higher year-on-year.

What does this mean for house prices? This long-term collapse in NMLG suggests UK house prices are standing at the cliff face. If they follow net lending trends, residential property values could slump by over 15%.

The Bank of England's monthly 'mortgage approval for house purchase' figures are another useful forward indicator of UK housing market activity.

What's the latest? BoE mortgage approvals for house purchase fell from 67,085 in July to 66,569 in August. That's a long way from the peak of 129,168 approvals back in November 2006. Meanwhile, the August Nationwide UK house price index is 11.0% higher year-on-year.

What does this means for UK house prices? BoE mortgage approvals for house purchase lead annual percentage changes in the Nationwide UK ‘all houses’ price index by some four months. But with Britain’s recovery still fragile, a slide in house prices is still a possibility.

This gauges the monthly mood swings of Britain's consumers. It "tracks changes in personal finance, the general economic situation, inflation, unemployment, the current purchasing climate, and consumer spending and saving", say its compilers GfK/NOP.

What's the latest? For August, the GfK rose to 1. August's Halifax UK three-monthly house price index saw a 11.0% year-on-year rise.

What does this mean for UK house prices? This indicator leads the Halifax UK three-monthly house price index by some four months. The uptrend in the GfK indicates rising consumer confidence.

The UK CPI (consumer price index) is the most widely-used indicator of our cost of living.

What's the latest? July's UK CPI was up 1.6% year-on-year, compared to 1.9% the previous month. Meanwhile, RPI was 2.5% higher compared to 2.6% in June. The August Nationwide UK house price index is 11.0% higher year-on-year.

What does this mean for UK house prices? Higher CPI normally means higher interest rates. Despite the fall in UK CPI since 2010, inflation is still too high. It may drop more, but the historic relationship of higher CPI = less UK house price inflation will return at some point.


Property: the MoneyWeek view

August 2014: Look to the US and Germany Overpriced houses are becoming even more overpriced – especially now that the strengthening economy will boost consumer confidence and large purchases. Eye up property in the US instead. Germany is also worth a look, provided you steer clear of the centre of the major cities.

See our view on all the major asset classes here.

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