UK house prices are continuing to soar, according to the latest data, suggesting that investing in property remains an interesting alternative to buying stocks and shares.

The Royal Institution of Chartered Surveyors (RICS) says house prices have risen again in all parts of the UK for the third consecutive month, while the stock of housing continues to fall. Prices are expected to rise by 4.5% per annum over the next five years; a cumulative increase of around 25%.

Higher prices across the UK are expected for a third month in a row, new sales instructions are extending their streak of uninterrupted decline stretching back to February but, while sales growth is pausing, expectations remain a little more positive, RICS says.

Long run of bad luck for first-time buyers

Of course, for people looking for a home, this is generally bad news not good. “There was little reason to be cheerful about this morning’s RICS survey. The big picture is that price pressures remain elevated and there is little sign of any imminent improvement in market liquidity,” writes Hansen Lu, property economist at Capital Economics.

With much of the “demand stemming from investors and first-time buyers, who typically buy but don’t sell, and low interest rates increasing the relative attraction of property as an investment, there seems to be little prospect of the stock of homes for sale normalising in the near future,” he adds.

The rise in house prices reported by RICS contrasts starkly with the recent performance of the shares of companies building residential property, which appear to be running out of steam after a strong rally.

That’s despite the further signs of house price momentum in the latest figures. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says “tight supply conditions mean that even the moderate recovery in mortgage lending is fostering strong house price gains.

“Homeowners appear to be holding on to their homes in anticipation of being able to sell them for a higher price later, while a surge in buy-to-let purchases has restricted supply, as these investors don’t simultaneously buy and sell,” he writes.

Moreover, “the differential between the new buyer inquiries and sale instructions balances remains wide and points to an acceleration in house prices over the next two quarters. We doubt the balance will weaken further either, given that banks report they are willing to increase lending, consumer confidence is still high and mortgage rates are close to record lows,” Tombs adds.

The Pantheon chart shows that the house price balance is exceptionally high and is consistent with about 3% quarter-on-quarter house price growth in the fourth quarter of this year

Source: Pantheon Macroeconomics