House prices rise highest for a year in January

February 12, 2024

‍In our Market Monday Insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

House prices rise highest for a year in January

House price rises in January were the highest for a year as mortgage rates continued to ease.

A slowdown in inflation and a recently buoyant jobs market also helped push property prices up. The UK's biggest mortgage lender, Halifax, said a typical home now costs £291,029 on average, a 2.5% jump from January the previous year.

The figures come as major housebuilder Barratt announced it would buy rival Redrow in a deal worth £2.5bn. Housebuilders have struggled over the past couple of years as higher interest rates dented demand and construction costs rose in conjunction with this.

But expectations of rates being cut this year, with inflation - the pace of price rises - slowing down, has led to increased confidence in the housing market, Halifax said in a recent report.

However, it warned that while house prices had risen, interest rates still remained relatively high compared with the historic lows seen in recent years, making it more expensive for prospective buyers to borrow. The lender also stated that first-time buyers faced average deposits of £53,414.

Price data is based on its own mortgage lending, which does not include buyers who purchase homes with cash, or buy-to-let deals. Cash buyers account for about a third of housing sales.

First-time buyers and homeowners looking to remortgage properties have faced higher borrowing costs in recent months. The Bank of England has recently held interest rates at a 16-year high of 5.25% since August 2023, in a bid to try to slow down the rapid pace of general price rises across the country.

A typical two-year fixed mortgage rate would charge 5.57% interest on Tuesday, while a five year deal would charge 5.22%, according to data from available data. This is down from a peak of 6.86% for a two-year deal in July last year, it also stated.

Germany’s economic outlook remains shaky amidst recent data

Germany’s economy has been struggling and the latest data has provided little hope for improvement as the nation looks to continue tackling economic woes.

Multiple key 2023 data points, namely factory orders, exports and industrial production, were out last week and indicated a weak end to the year that saw questions about Germany being the “sick man of Europe” resurface to the front pages.

The data confirm that German industry is still in recession with multiple economists predicting continued economic downturn.

Industrial production declined by 1.6% in December on a monthly basis, and was down 1.5% in 2023 overall compared to the previous year. Exports – which are a major cornerstone of the German economy – fell by 4.6% in December and 1.4%, or 1.562 trillion euros ($1.68 trillion), across the year.

Meanwhile, factory orders data seemed promising at first glance as it reflected an 8.9% increase in December compared to November.

But this growth is not a source of comfort for many economists, with some explaining that it is thanks to several large-scale orders, which tend to be highly volatile. Orders excluding large-scale orders actually fell to a post-pandemic low.

For 2023 overall in comparison to the previous year, factory orders were down 5.9%.

This figure sits relatively in line with how Germany’s economy fared in 2023, when it contracted by 0.3% year-on-year, according to data released by the federal statistics office last month. 

The data also showed a 0.3% decline of the gross domestic product in the fourth quarter, but Germany still managed to avoid a technical recession, which is characterised by two consecutive quarters of negative growth.

This is due to the statistics office finding that the third quarter of 2023 saw stagnation rather than contraction. But should the economy contract as expected in the first three months of 2024, Germany would indeed fall into a recession.

Eurozone inflation continues to cool

The most recent inflation figures for the 20-nation Eurozone continue to show positive trends, yet there has been a recent uptick in bond yields due to investor expectations that the European Central Bank (ECB) may postpone rate cuts. 

Despite a slowdown in both headline and core inflation, there has been no deceleration in the inflation of labour-intensive services, leading to concerns among investors that progress in reducing inflation may be hindered by a tight labour market – a concern shared by the ECB.

According to reports from the European Union (EU), consumer prices rose by 2.8% compared to a year earlier in January, but fell by 0.4% from the previous month. Core prices, which exclude volatile food and energy prices, saw a 3.3% increase, the lowest since March 2022, and dropped by 0.9% from the previous month.

Notably, prices of non-energy industrial goods rose by only 2% compared to a year earlier and saw a significant decrease of 2.4% from the previous month.

While these figures may seem promising, investors are concerned by the fact that service prices have remained stable, showing a year-on-year increase of 4%, consistent with the figures from December and November. 

This lack of deceleration in service prices is worrisome because services typically rely heavily on labour, and wages are rising sharply. As a result, it is expected that the ECB will hesitate to cut interest rates until wage pressures ease.

Recent data has also indicated that despite a sharp rise in shipping costs, the cost of shipping a container from China to Europe is now only about one third of what it was in early 2022. This development has had a noticeable impact on economic performance, suggesting that the inflationary effects of the current crisis are unlikely to resemble those of the pandemic period.

All Insight Articles >Contact Us >

Latest Insight