As a former property journalist I understand why the media uses Brexit to explain the performance of the UK housing market. Or even, at a stretch, Donald Trump.
House prices are a national obsession, but a Brexit headline gives the story an extra dimension.
Coverage of all three subjects is likely to intensify in 2017, as this morning’s Article 50 verdict reminded us, so it seems like an appropriate moment to examine how close the links are between house prices, the UK’s decision to leave the European Union and the new US President.
First, let’s look at prime central London (PCL), where you would expect the biggest impact to be felt.
Knight Frank’s PCL index recorded a -6.3 per cent decline in 2016 and you will have seen the headlines about falling prices in London’s most expensive postcodes. Don’t stop reading here: the rather mundane cause is stamp duty not the EU referendum.
Two hikes since December 2014 have slowed transaction levels, which have started to stabilise as vendors reduce asking prices. Knight Frank transactions in the last quarter of 2016 were higher than the same period in 2015 and 2014.
Two other factors are behind the slowdown, neither of which involves the 45th President of the United States. First, the market has paused for breath to some extent following an exceptional period of growth between 2009 and 2012. Second, ultra-low interest rates mean more homeowners are able to sit tight, reducing the turnover of properties.
Admittedly, some buyers and sellers will hold off for Article 50, but this should be put in context. For every person waiting, there will be somebody impatient to move after the stamp duty-induced slowdown.
Similarly, while transaction volumes were relatively weak last summer, the EU referendum was only part of the story. The lull followed one of the biggest spikes on record in March ahead of a stamp duty hike in April.
So, Brexit cannot be discounted as having no influence in a slowing market, but its impact is dwarfed by other factors.
However, it has had an effect in other ways.
Sterling has weakened markedly since the referendum, strengthening the buying power of those denominated in overseas currencies. A US buyer moving to PCL would benefit from an effective discount of 22 per cent in the year to December 2016 given currency and house price movements.
Despite the compelling statistic, a section of buyers are waiting for the ‘bottom’ in terms of the exchange rate, and this is where Donald Trump comes in. His ideological support for Brexit will inevitably have some bearing on the wider process, but a more direct effect on PCL would be if the dollar weakened as part of any drive to stimulate US trade. It could reverse any currency discount and underlines how the waiting game is a high-risk strategy given the volatile political backdrop.
Two other points are worth bearing in mind. First, any future trade deals may strengthen demand from signatory countries. Second, London’s appeal as a safe-haven market could rise if global geo-political uncertainty persists.
To date, the impact of Brexit (and Trump) has been even smaller in the rest of the UK, where a multi-speed recovery is underway. Urban markets in particular have fared better, depending on their local economy.
However, that is not to say there will be no second-round effects from Brexit, depending on what happens to inflation, wage growth and interest rates. To date, any Brexit effect on the property market has been minimal.
To assess which UK markets are performing most robustly as Brexit talks get underway, Knight Frank has analysed how far they have recovered since the 2008 recession, stripping out the effects of inflation.
It is probably no surprise that London dominates the list. Even the top three performers outside the capital are the commuter zones of Kingston, Watford and St Albans. See the table below for more detail.
Furthermore, the London results themselves reveal an interesting trend. The top performer in the country was Herne Hill (SE24), with 60 per cent price growth since 2008, and three of the top six property markets are in south-east London, as well as neighbourhoods like Brockley and Peckham, where families (including myself) have moved due to affordability constraints elsewhere.
When I walk up the high street in Honor Oak Park (SE23), it strikes me as a case study in how the wider area is changing. The mix of backgrounds in the revamped local pub captured the mood perfectly when I was in there last week. The one thing everyone had in common was a strong opinion on Brexit, Donald Trump and house prices. Just don’t conflate the three.
Tom Bill is Head of London Residential Research at Knight Frank