Are you ready for house prices to dip?
After seeing a dramatic 24% increase in prices over the past 32 months, industry analysts are predicting a fall in house prices in 2023. Find out what this could mean for you and your next property purchase.
The Property Price Consensus
Surveyed predictions for 2023 UK house prices revealed a general consensus that prices are likely to decrease. Of the 13 sources, 5% to 8% price drops were forecasted (with an average of 6%) within the market.
Whilst this decline may seem large, it is worth noting that it is often just corrections to the large rises seen over the past two years. For example, Halifax Home’s director, Andrew Asaam, suggests that:
“It’s important to remember we saw some of the biggest house price increases the market has ever seen over the last few years. Between March 2020 and August 2022, the average house price increased by nearly £55,000 (23%) to £293,992, a new record high.”
And even though house prices are set to fall, Robert Gardner, Nationwide’s Chief Economist, points out that there is a good chance of a soft-landing in the property market:
“The risks are skewed to the downside, but there is still a good chance that we can achieve a relatively soft-landing next year with activity stabilising modestly below pre-pandemic levels and house prices edging lower, perhaps by around 5%.”
An important point to note when predicting house price changes is that the UK is not one homogenous housing market, but instead made up of countless smaller regional markets, each with its own dynamic influencing its performance.
Savills, for example, predict the most severe falls in house prices for 2023 to be in London and the South East with a decrease of between 11 and 12.5%. Comparatively, Savills forecast house prices in the North West, North East and Yorkshire & The Humber regions to decrease by only 8.5%.
Savills also believe that the Prime housing market – or the top end of the market – may be more resistant to falling prices, with Central London houses projected to fall by only 2%.
Factors Affecting Prices
The decline in house prices is likely due a number of factors, which have been exacerbated as a result of the pandemic.
The pandemic has caused inflation to rise, forcing the Bank of England to increase the Bank Rate from its historically low levels. At the same time, household costs (such as energy bills) are likely to increase, putting strain on family budgets.
These financial pressures and higher mortgage rates, as well as the cost-of-living crisis, are likely to lead to fewer first-time buyers and buy-to-let investors – reducing the demand side of the equation and resulting in lower house prices.
The outlook for property transactions in the year ahead
The number of house transactions is also a key measure of the health of the UK’s housing market. Savills predict that where the number of home transactions was 1.1 million in 2022, numbers will fall to below 900,000 in 2023.
However, there has been cause for some optimism, as December’s Rightmove data showed an 11% year-on-year increase in views for homes for sale.
Will House Prices Bounce Back in 2024?
The outlook for house prices in 2024 is unclear and largely dependent on the severity of the house price fall in 2023, with Savills predicting a large bounce back in all the regions between 2024 and 2027 whereas, the OBR suggest house prices will continue falling through 2024, with a combined decrease of 9% over two years.
Similarly, Knight Frank forecast house prices to fall by a further 5% in 2024, with prices then beginning to pick up again in 2025 before rebounding more substantially in 2026.
Ultimately, what the British property market will look like in 2024 remains to be seen. Although the house price downswing starting in 2023 may cause alarm for some, it’s worth remembering that there are still many factors at play – and corrections of this nature are far from uncommon.
It is a long term game - we all knew that. So, be efficent, ensure you are charging a good and fair rent see: (How do you increase the rent)?
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