While last year’s growth remained above the 3-4% level that Nationwide expects to prevail over the long-term, it says house price prospects will crucially depend on developments in the wider economy, around which there is a larger degree of uncertainty than usual.
“Like most forecasters, including the Bank of England, we expect the UK economy to slow modestly next year, which is likely to result in less robust labour market conditions and modestly slower house price growth,” said Nationwide’s chief economist Robert Gardner.
“But we continue to think a small gain (around 2%) is more likely than a decline over 2017 as a whole, since low interest rates are expected to help underpin demand, while a shortage of homes on the market will continue to provide support for house prices.
“The major house builders appear to have capacity to expand output, with most reporting land banks that could support around five years’ worth of construction at current rates of building activity. However, there is a risk that the uncertain economic outlook may weigh on activity in the period ahead.”
Indeed Gardner says the factor which made the biggest difference to the UK housing market in 2016 was that the fundamentals underpinning housing demand remained solid. Labour market conditions were robust, with strong employment growth, healthy gains in real wages and borrowing costs falling to new record lows.
“The relative stability in the rate of house price growth throughout 2016 suggests that softening in housing demand that we saw through the summer months was broadly matched on the supply side of the market,” he says.
