(Bloomberg) --
U.K. house prices shocked forecasters by posting the biggest increase since August, defying widespread concerns over a mounting cost of living crisis.
The average value of a home rose for a seventh month to a record 260,230 pounds ($346,000) in February, Nationwide Building Society reported Wednesday. The 1.7% gain left house prices 12.6% higher than a year earlier. Both readings exceeded economists' expectations.
The housing market has defied the plight of the wider economy since the coronavirus pandemic began, with values rising 20% since February 2020. They have been boosted by temporary tax incentives, a shortage of stock and demand for properties outside urban areas with room to work from home.
However, the boom has stretched the finances of first-time buyers, who are now grappling with the fastest inflation in 30 years and looming increases in energy bills, taxes and interest rates. That had led to predictions that the buoyant market would face headwinds in 2022.
“The strength is particularly noteworthy since the squeeze on household incomes has led to a significant weakening of consumer confidence,” said Robert Gardner, Nationwide's chief economist. Still, “it is likely that the housing market will slow in the quarters ahead,” he said.
“Indeed, there is scope for inflation to rise even further as events in Ukraine threaten to send global energy prices even higher,” he added.
With the increase in house prices far outstripping pay growth, the price of a typical home is now equivalent to 6.7 times average earnings, up from 5.8 in 2019, Nationwide said.
What Bloomberg Economics Says ...
“A boom in Britain's housing market continues to defy the economic headwinds. The recent rise in mortgage approvals points to robust demand in the coming months as buyers potentially attempt to bring forward purchases ahead of further interest rates increases. Still, house price growth is set to cool further out as rates rise and the squeeze on the cost of living intensifies.”
--Niraj Shah, Bloomberg Economics. Click for the REACT.
©2022 Bloomberg L.P.
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