Every month, some 1,500 households across the country tell us what they think has happened to the value of their home over the last month, and what they expect to happen to its value over the next year. This data is then crunched into something called the House Price Sentiment Index, or HPSI for short. The name doesn’t trip off the tongue, but the index, produced in conjunction with Markit Economics, gives us a good glimpse into the housing market.
Sentiment is important for housing — it can determine decisions by discretionary buyers, those who are not motivated by necessity, such as a move for work, for school or to house a growing or shrinking family.
Anyway, back to the HPSI (the name will start to grow on you, promise). What it showed this month was that sentiment in the housing market eased somewhat.
Before I start on the figures I will explain how the HPSI works. Any reading over 50 indicates rising prices, while any reading below 50 indicates falling prices.
The reading for the current HPSI (what’s happened to prices over the last month) dropped from 60.5 to 60.1 in April, while the future HPSI (measuring what households think will happen to the value of their home over the next 12 months) dipped from 71.6 to 68.8. So households report that prices are still rising, but with less velocity. There is a similar story on future house prices, with households still expecting prices to continue rising, but at a slower pace than back in mid-2014 when the future HPSI reached a record high of 75.1.
The index also shows a regional disparity in the housing market. While those in London and the South East report the biggest rise in house prices, those in the north of England report much more modest growth. This is mirrored exactly in official house price data. Take, for example, the latest house price data from the Land Registry. It shows that over the last year, prices in London have grown by 13.5 per cent, compared to a 4.9 per cent increase in the North West of England.
However, the HPSI tells us that it is not only geographical location which determines sentiment. Those in older age-groups are more positive about current and future house prices than many younger people, a trend which tells its own story about the balance of equity in the housing market.
Likewise, those who own their own home, whether with or without a mortgage, have consistently reported stronger price expectations than those living in the rented sector.
The slight dip in sentiment this month has been accompanied by a notable drop in the number of households expecting to buy a property within the next year. Some 5 per cent of households across the UK said they were expecting to purchase a property in the next 12 months, down from 5.5 per cent in December.
On a slightly longer-term basis, the proportion of households across the UK planning to buy a property within the next two years was 10.8 per cent, the lowest proportion since we started collecting this data in April 2014. This slight dip in demand comes alongside a prolonged deterioration in supply, with RICS reporting a record low number of properties on the market across the country.
This simple household survey highlights many of the key themes in the housing market. Perhaps most importantly, it shows the direction of travel, as shown in the chart below.
It may have a challenging moniker, but the HPSI is a crucial bellwether for the UK residential housing market.
The index also shows a regional disparity in the housing market. While those in London and the South East report the biggest rise in house prices, those in the north of England report much more modest growth. This is mirrored exactly in official house price data. Take, for example, the latest house price data from the Land Registry. It shows that over the last year, prices in London have grown by 13.5 per cent, compared to a 4.9 per cent increase in the North West of England.
However, the HPSI tells us that it is not only geographical location which determines sentiment. Those in older age-groups are more positive about current and future house prices than many younger people, a trend which tells its own story about the balance of equity in the housing market.
Likewise, those who own their own home, whether with or without a mortgage, have consistently reported stronger price expectations than those living in the rented sector.
The slight dip in sentiment this month has been accompanied by a notable drop in the number of households expecting to buy a property within the next year. Some 5 per cent of households across the UK said they were expecting to purchase a property in the next 12 months, down from 5.5 per cent in December.
On a slightly longer-term basis, the proportion of households across the UK planning to buy a property within the next two years was 10.8 per cent, the lowest proportion since we started collecting this data in April 2014. This slight dip in demand comes alongside a prolonged deterioration in supply, with RICS reporting a record low number of properties on the market across the country.
This simple household survey highlights many of the key themes in the housing market. Perhaps most importantly, it shows the direction of travel, as shown in the chart below.
It may have a challenging moniker, but the HPSI is a crucial bellwether for the UK residential housing market.
Gráinne Gilmore is Head of UK Residential Research at Knight Frank, the property consultancy. She is also a former economics correspondent at The Times.
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