"Deterioration in the labour market, together with an expected squeeze on households’ spending power – as inflation picks up and outpaces earnings growth later in the year – is likely to curb housing demand."
In its UK Housing Market Outlook for 2017, Halifax says the "relatively wide range" for the forecast reflects the higher than normal degree of uncertainty regarding the prospects for the UK economy next year.
It believes slower economic growth, pressure on employment and a squeeze on spending power, together with affordability constraints, will all reduce housing demand over the coming year.
Nonetheless, it says prices should continue to be supported by an ongoing shortage of property for sale, low levels of housebuilding, and exceptionally low interest rates.
However reduced housing demand is likely to result in lower house sales "as more people respond to weaker economic conditions and the deterioration in housing affordability by not buying or moving home".
It also expects the buy-to-let sector to cool further in 2017 as a result of impending tax changes and stricter underwriting criteria.
Halifax’s housing economist, Martin Ellis, commented: “House price growth started 2016 very strongly with the annual rate rising to a peak of 10.0% in March and quarterly price growth reaching 3.0% in February. A rush to beat the introduction of a higher rate of stamp duty on purchases of second homes and investment properties in April resulted in additional upward pressure on prices early in the year.
“A steadily growing economy, with increasing employment and strengthening household finances, has supported housing demand during 2016. Very low mortgage rates, which have fallen further over the year, have also assisted.
“Another key feature of the market has been the ongoing, and acute, shortage of properties for sale. The stock of homes available for sale has been at, or close to, record lows throughout the year.
“The housing market is critically dependent on how the wider economy evolves. We consider it most likely that the UK economy will soften over the course of 2017. This is most likely to result from the weakening of sterling pushing up import costs and dragging on purchasing power, both for consumers and as a determinant of business investment spending.
“Slower economic growth in 2017 is likely to result in pressure on employment with a risk of a rise in unemployment. This deterioration in the labour market, together with an expected squeeze on households’ spending power – as inflation picks up and outpaces earnings growth later in the year – is likely to curb housing demand. These factors, combined with increasing affordability constraints, particularly in London and the South East, are likely to result in a further easing in annual house price growth during the coming year, continuing the trend seen since the spring of 2016."
