According to the Office for National Statistics, UK house prices were up 6.7% on the year to November 2016. This marks the first significant increase in house prices since the referendum to leave the EU and acts as further evidence economists have got it wrong on the housing market.
East And South East The Standout Regions
The other encouraging finding from the report is that every region in the UK has ended 2016 in positive territory with the South East and East the stand out regions recording property price growth of 8% and 10% respectively over the course of 12 months.
This is despite the Treasury predicting that house prices would be no higher by mid-2018 than when the referendum took place in June 2016.
London Property Market Slips Behind
The only blot on the OHS report was the slowdown in the London housing market. The capital has been setting the pace for a several years since 2008 but has since slipped to third as home sales have plunged 40% in the capital.
Evidence from this latest report suggests that London may well have hit a ceiling with house buyers moving out of the city and increasing competition for housing in the South East commuter belt.
House prices remain significantly lower in these areas than in London where house prices have been driven up by investors from the UK and overseas.
Four of the worst performing local authorities were in Scotland with the city of Aberdeen seeing prices fall by nearly 8% in 2016. Contrast this with Rutland which saw prices rise by more than 20% in the same period to £307,000 and the difference is particularly stark.
Is Inflation Really A Bad Thing For The Property Market?
Despite this recent uplift in property prices, some estate agents are still predicting tougher times ahead for the market.
The main reason given is the threat of inflation. This ignores the possibility that inflation could actually be a good thing for both the economy and the housing market.
Years of low inflation had been threatening stagnation which is probably a much greater threat than the modest inflation rate increases we have seen so far.
Inflation will inevitably put pressure on wages which could rise as a result and erode the debt owed by homeowners on their properties over time. This can only encourage people to climb the property ladder as long as mortgage interest rates remain low.
With no sign of a base rate rise in the foreseeable future, this looks certain to preserve the underlying health of the housing market as we begin 2017.