House prices rose by 1.1% in March, with annual growth now at 14.3%, the highest growth since 2004 according to Nationwide. Growth has been strong across all regions, but annual growth was strongest in Wales (up 15.3%) and weakest in London, up 7.4%. It continues to be fuelled by a persistent supply/demand imbalance.

Despite tantalizing signs of rising supply, the imbalance compared to demand is set to continue and prices are expected to rise over the next few months. While growing numbers of surveyors have been reporting an increase in new instructions, according to RICS, they remain a minority. The number of homes coming to market has also exceeded new sales since January, according to TwentyCi. However, it will take time for these faint signs of new supply to meet the high levels of demand and have any impact on price growth.

Despite the low availability of stock, sales activity continues to be strong. Sales completions in February were 17% above the 2017-19 average. The number of sales agreed has also remained consistently high, about 15% above the 2017-19 average. The number of transactions completing each month is therefore likely to remain high for the next few months at least. This means our forecast for 1.24m transactions this year is likely to be exceeded.

Economic headwinds will do little to slow the market in the short term. Although the Bank of England base rate went up to 0.75% last month, mortgage lending rates remain low. Likewise, rising costs of living will take time to bite on the housing market, which is driven by more affluent households who are better able to cope with rising costs.

Longer term, rising costs of living and higher mortgage interest rates will severely limit price growth. The level of activity in the market may also be reduced. First time buyers will be most affected and they are also contending with the rapid increase in rental prices, which will cut the amount of money they are able to save for a deposit.

Rental value growth remains strong, at 10.2% in the year to February, driven by a significant gulf between demand and supply. Unlike the sales market, there are no indications of rising supply.

House price growth was strongest in parts of Wales. Blaenau Gwent and Merthyr Tydfil saw annual growth of 24% and 22% respectively. Growth was weakest in the London Borough of Newham, down 4.3%.