House Prices Have Risen By 3.8%, But What Does This Mean?

House Prices Have Risen By 3.8%, But What Does This Mean?

The estate agent YOPA has announced that the early predictions of a 1.2% rise in house prices for 2017 has already been exceeded, with the current figure instead sitting at 3.8%. If this continues, the housing market could have risen by more than 7% by the end of 2017. Is this a sign of things to come, or is this the calm before the storm?

The current state of the economy is confounding most predictions, as the threat of Brexit was supposed to take a toll on overall GDP, spending and investment. Businesses were expected to reduce spending and tighten belts until the United Kingdom had left the European Union, and consumers were expected to increase their individual savings pots despite historically low interest rates. In addition, international investment was expected to decline, and European spending was also likely to be reduced.

At least, this was only the expected impact of the leave vote on the 23rd June 2016.

In reality, much of this hasn’t happened, and indeed house prices have actually risen. But are house prices that great of a barometer for the wider economy?

Over the years, house prices have reflected the amount of money available to the consumer in the economy. When GDP falls, house prices similarly fall, as consumer confidence goes down. When the economy contracts, there’s less spending, and people are less able to afford more expensive houses, so you see a contraction in overall house prices. It’s also a good indicator of the amount of demand for housing, as when there are more jobs, more people can afford to buy houses. Finally, it’s indicative of immigration and emigration figures, as when you have an influx of people into the country, the demand for housing stock rises, whereas overall emigration creates less demand.

This has been backed up by the Office for National Statistics, which noted a rise in UK GDP of 0.3% between January and June 2017.

So what does this mean for a post-Brexit economy?

The answer may be not much. At the moment, the United Kingdom is still in the European Union, so the customs union is still in effect, as are various trade agreements, laws, regulations and the right to free movement. Consequently, the impact of Brexit has likely not really been felt, and it’s possible that this will change significantly if the United Kingdom pulls out of the European Union.

So, although the 3.8% rise in house prices is encouraging, as are the current predictions for GDP growth and the economy, it’s possible that celebrating is premature. If you’re interested in keeping an eye on house price figures, don’t forget to check out this Brexit house price tool.

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