Annual house price growth of only 2 per cent, as forecast for 2017, seems good when that is also the inflation target
Recent data from Nationwide has confirmed what many suspected: house prices are continuing to fall, with the annual growth rate slowing to just 2.1 per cent – the lowest for four years.
Having seen prices grow by 4.5 per cent last year, the lender is forecasting a far more modest 2 per cent increase for 2017.
Some experts think the slowdown has been caused by the recent squeeze on household budgets due to the weakness of the pound, while others point to affordability pressures in certain parts of the country.
The big question is whether this is just a temporary blip or something more permanent.
I suspect the ongoing shortage of housing will continue to underpin future house price growth, but only time will tell.
All of that said, is a slower rate of price growth necessarily a bad thing? Emotionally, we all want our properties to increase in value. However, when considered more rationally, rapidly rising house prices are not healthy for the market.
Surely house price growth equal to, or no higher than, the rate of inflation is both sustainable and desirable. Buyers will be less inclined to view property simply as an investment opportunity and hard-pressed first-time buyers will not find the homeowning dream so far out of reach.
Houses are for living in, not speculating on. Yes, double-digit price increases may make us feel good but they do not do most of us any favours. The harsh truth is that the houses we want to buy next are also increasing in value at the same rate, meaning a wider price gap to fund.
We need more homes to be built and we need a stable and steady rate of house price growth. Two per cent per year seems good at a time when that is also the inflation target. Sustainability should be the name of the game.
Peter Izard is business development manager at Investec Private Banking