Bill Jamieson: House-price rises not always a given

House sale volumes in Scotland have risen but prices have moved in the other direction in recent months. Picture: Phil Wilkinson

Rising house prices? Tell us something new. That most quoted of measures, the Halifax House Price Index, has recorded continual rises, month on month, year-on-year as regular as the chiming of an old clock we barely notice.

Its latest reading for March shows average prices in the UK rose 2.6 per cent on the month. And the annual rate of increase has climbed to 10.1 per cent to another record high – the fastest pace since July 2014. At the Nationwide there is a similar if more muted story of a relentless upward movement.

These two indices lull our senses, their findings as predictable and (for existing home owners) as comforting as the soothing drone of bees in summer. Don’t house prices always rise? And need we worry about our savings and pensions as long as they do, with the safety hatch of equity release close to hand? But in Scotland this familiar story may be changing. Here, according to Registers of Scotland (RoS) statistics this week – widely regarded as the most accurate measure of house price measures – prices have dropped by almost 10 per cent in the first quarter.

Kenny Crawford, director of commercial services at RoS, reports that while sales volumes are up, prices are down by 8.4 per cent compared to the previous year, bringing the average price to £159,198.

A decisive break in the house price story? The start of a prolonged downturn? Or a hiccup in the long-term upward story?

We need always to take care in reading house price movements. A loud klaxon should sound when we see the word “average”. This can obscure a multitude of  different movements across the market – by location, by geography and by housing type. The gravity-defying movements of prices in London’s Belgravia are in no way typical of the UK as a whole. North-south price differences are also widening.

“Overall,” says the Nationwide’s chief economist Robert Gardner, “the pace of house price growth generally moderates as you move from the south to the north of the country, with the north of England and Scotland actually recording modest house price declines in Q1, even though prices remain well below pre-crisis levels in those regions.”

Meanwhile, the market has been subject to changes in land and buildings transactions tax (stamp duty as was) and the 3 per cent surcharge on tax rates for second homes. Both these have triggered temporary surges in activity as buyers sought to close sales ahead of these rises. And here in Scotland, as the RoS reports, demand, sales and prices in the market for popularly priced flats continues to be robust. All property types showed an increase in sales volumes across Scotland, with flats seeing the biggest increase at 24 per cent.

The drop in prices recorded overall across Scotland could, it says, be down to the higher number of lower-value properties sold in the first three months. And the latest figures are being compared with this time last year, when there was a spike in prices with an increase in the number of high-value property sales.

But even with these caveats in place, a long-term and indisputable influence on house prices continues to be the overall performance of the economy. House prices cannot long defy a slowdown in overall activity – affecting employment, average earnings, household spending – and confidence. A dramatic illustration of the influence of economic activity on housing demand can be seen in the Aberdeen area – severely hit by the plunge in the oil price and subsequent cutbacks in staffing and investment.

In contrast to the rise in sales generally across Scotland, Aberdeen and Aberdeenshire reported a sharp drop – down by almost a tenth in both areas. And prices have plummeted. The average price of a detached home in Aberdeen according to RoS has fallen by 20 per cent to £356,534, with similar falls in all property types in the city.

Now while Aberdeen may be untypical, it is by no means the only area in Scotland where prices have weakened. Prices of detached properties in Glasgow recorded a fall of 21 per cent and in Inverclyde by 27 per cent, though terrace and flat prices are stable in Glasgow and considerably higher in Inverclyde.

Edinburgh recorded a 3.3 per cent rise in sales during the quarter. But the capital saw one of the biggest drops in median house prices – down 14.6 per cent to £175,000.

Where prices go from here depends on what lies ahead for the economy. The latest assessment from the Nationwide’s Robert Gardner is upbeat. “The pace of house price growth,” he predicts, “may moderate again once the stamp duty changes take effect in April.

“However, it is possible that the recent pattern of strong employment growth,  rising real earnings, low borrowing costs and constrained supply will keep the demand/supply balance tilted in favour of sellers and maintain pressure on price growth in the quarters ahead.”

But can we really be so sanguine? Official figures yesterday showed economic growth across the UK slowed in the first quarter, hit by a drop in manufacturing and construction output. GDP growth slipped to 0.4 per cent, down from 0.6 per cent in the preceding quarter, with the annual rate down to 2.1 per cent.

In Scotland the growth outlook is even more problematic. Scottish economy watcher Tony Mackay forecasts growth in Scotland down to 1.7 per cent this year, with a modest recovery to 1.9 per cent in 2017. These forecasts are below the average forecasts for the UK, reflecting the impact of the collapse in oil prices. Both the Fraser of Allander Institute and accountants Ernst & Young have recently lowered their Scottish forecasts.

The Scottish Government’s official estimates of Scottish GDP for the fourth quarter of 2015 are particularly worrisome, with growth down to just 0.2 per cent. The Office of the Chief Economic Adviser (OCEA) has also revised its estimate for Q3, which now shows a 0.1 per cent fall – the first since the second quarter of 2012.

And while the continuing recession in the North Sea oil and gas industry is chiefly to blame, we may be heading for a further upset. The Holyrood administration’s overall growth picture has relied heavily on remarkably upbeat numbers from construction – up by a credibility stretching 19.5 per cent for 2015. This may reflect a heavy weighting given to public sector contracts such as the Queensferry Crossing.

But as Mackay points out, with work here due to be completed later this year, “the implication is that the official statistics will then show a large fall in construction output in Scotland. That in turn will reduce the quarterly GDP estimates during 2016. It is likely therefore that the official statistics will show a 2016 growth rate below our 1.7 per cent forecast”.

That by no means makes for a house price fall. But the story of ever-rising price rises may be replaced by a notable pause – and that old familiar clock set to miss a chime or two.