GB: Nationwide HPI

June 1, 2017 01:00 CDT

Consensus Actual Previous
M/M % Chg -0.1 -0.2 -0.4
Y/Y % Chg 2.4 2.1 2.6

According to the new Nationwide survey, UK house prices fell for a third straight month in May, the first time that this has happened since 2009. A slightly steeper than expected 0.2 percent drop versus April was only half of that month's unrevised decline but still enough to lower the annual rate of inflation by 0.5 percentage points to 2.1 percent, its weakest outturn in nearly four years.

Over the last three months, the lender's HPI dropped 0.2 percent and confirms a marked slowdown in prices from the 1 percent plus rates posted over much of 2016. Election uncertainty may have made for some additional downside pressure although there is little evidence to back this view. Rather, the cooling in the housing market would seem to be linked to a more general trend deceleration in economic activity, itself promoted by Brexit concerns and the increasing squeeze on real household incomes prompted by the pound's post-Brexit vote decline.

However, supply-side fundamentals remain very supportive and at this stage the Nationwide is still looking for house prices to rise a gentle 2 percent over the calendar year as a whole.

The Nationwide House Price Index (HPI) provides house price information derived from Nationwide lending data for properties at the post survey approval stage. Nationwide house prices are mix adjusted; that is, they track a representative house price over time rather than the simple average price.

Home values affect much in the economy especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health. During the first half of this decade sharply rising home prices boosted how much home equity households held. In turn, this increased consumers' ability to spend, based on wealth effects and from being able to draw upon expanding home equity lines of credit.

Although the Nationwide data are calculated similar to the Halifax method Nationwide substantially updated their system in 1993 following the publication of the 1991 census data. These improvements mean that Nationwide's system is more robust to lower sample sizes because it better identifies and tracks representative house prices. Historically, the data go back to 1952 on a quarterly basis and 1991 on a monthly basis.

Over long periods the Halifax and Nationwide series of house prices tend to follow similar patterns. This stems from both Nationwide and Halifax using similar statistical techniques to produce their prices. Nationwide's average price differs because the representative property tracked is different in make up to that of Halifax.