The UK’s love affair with housing isn’t over, but it has certainly cooled of late. A combination of increased stamp duty on second homes, fewer tax breaks for buy-to-let landlords, and the uncertainty surrounding Brexit have all served to take some of the froth out of the UK residential real-estate market. However, based on a dispassionate analysis of the data, it is difficult to be too negative on the housing market over the next 6-9 months at least, and we may begin to see some modest recovery.

We can see in the top two charts two of the best leading indicators for UK housing are moving sideways and project stable house-price growth of about 2% YoY. London housing has been hit harder than the UK market as a whole, but even here the worst may be behind us. As we can see in the bottom-left chart, our leading indicator for London housing has been turning up. Of course there is always the latent risk that a no-deal Brexit for the UK will depress house prices more. The fact transactions have been falling (bottom-right chart) is also a concern that should be noted – there is a greater chance for a less liquid market to experience steeper price falls. But the reliable 20-year record of the leading indicators shown here suggests that, barring a catastrophe, the bottom for UK housing is not too far away.

(Click on image to enlarge.)

Charts showing UK housing prices, real estate transaction volumes, and buyer enquiries

Source: Bloomberg, Macrobond and Variant Perception