What’s next for house prices?

Six months after Liz Truss’ disastrous tenure as prime minister, the effects are still being felt in the real estate market. However, the vast majority are cautiously optimistic as spring brings all sorts of positive signs, as Annabelle Dixon explains.

  • Cautious optimism that house prices are now stabilizing

  • Real estate transactions down year-over-year but back to pre-pandemic levels

  • Public home prices fall but ‘still reflect the effects of Trussonomics’

  • Asking prices rise, but sellers remain cautious

  • Interest rate hike ‘huge disappointment’ for real estate market

As blue skies emerged, the sun shone, and I felt brave enough to throw off my winter coat this week, I wondered: Is spring finally here?

The same could be asked about the housing market – at least that’s a guess from the latest round of housing data that highlights the difference a few months could make.

Earlier this year, some in the real estate industry were still warning of a potential drop in home prices by as much as 25%. With the Bank of England raising interest rates this week due to higher-than-expected inflation, a note of pessimism can be expected to spoil the market’s outlook.

However, as you will see below, the vast majority are cautiously optimistic.

“The real estate market is not slowing down”

Let’s start by looking at transactions. The number of home sales that crossed the line in February is 18% lower than in the same month of 2022 and 4% lower than in January. Keep in mind that, as we explained last week in our article explaining real estate market indices, these deals were made months ago when things looked very different, as Nick Leaming, Chairman of Jackson-Stops explains: “The numbers reflect a climate of reticence on the part of homebuyers that followed Liz Truss’s time in office and the effects of the mini-budget that then began. However, despite the fact that the number of transactions has decreased slightly, the real estate market is not slowing down.”

Tomer Aboudi, director of lender MT Finance, adds that these numbers have always been expected: mortgage loans by the end of 2022.

What’s more, adds Abudi, the numbers look more like we’re finally returning to normal after three years of a pandemic that disrupted the property market: “Putting it all in perspective, the number of transactions is about the same as before the pandemic. highlighting how the housing market has exploded during and after Covid, with eager buyers looking to move in and in an environment of extremely low interest rates.”

UK HPI still ‘reflects the impact of Trussonomics’

The latest government data on house prices show that average UK prices rose 6.3% year-on-year in January, compared to 9.3% in December. For the month they fell by 0.6%. These figures – the UK’s official HPI – are based on sales prices, so like the home transaction data, they reflect buyer activity at the end of last year.

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But while January’s fall in annual house price growth tells us a lot about the detrimental impact of a mini-budget, it tells us very little about how the UK property market will perform this year, says Tom Bill, head of UK residential research. Knight Frank.

Leaming agrees: “Most of this data reflects the fallout from Trussonomics, where now as we move into spring we see a much healthier market with more listings as well as buyers as people resume searching after placing purchases on the site. keep longer than usual at the end of last year. “Sustainability” is the new buzzword for housing, as it could be a surprisingly bright summer ahead.”

Asking prices rise, but sellers remain cautious

The Rightmove House Price Index shows that the typical asking price of properties for sale rose 0.8% this month, helped by a 1.2% jump in large homes. That’s just below the 20-year norm, reflecting “a greater degree of price caution on the part of many new sellers than is typically seen at this time of year.” Last month, the real estate portal reported that average asking prices for newly listed homes have remained flat.

Meanwhile, year-on-year growth in asking prices eased to 3% in March, with new sellers’ asking prices now £5,800 below their peak last October.

“The data continues to indicate that the market is on a much more stable footing than many expected,” the real estate portal said in a statement, “and is moving cautiously into more normal 2019 market activity levels.”

The interest rate is rising: a wrench in the works?

At the time of writing, the Bank of England has just raised its base rate for the eleventh consecutive time to 4.25%. So this will throw a wrench into what Rightmove calls “careful recovery”?

Lucian Cook, head of residential research at Savills, explains: market to buyers rich in cash and stocks.

“The impact on buyers’ budgets will affect home prices, especially at the lower rungs of the housing ladder, where debt is the predominant source of funding.”

Savills estimates that about 70% of mortgage holders will still be protected from the recent rate hike. However, approximately 1.65 million borrowers on floating-rate mortgages and another 1.36 million borrowers on fixed-rate deals expiring this year will find household finances squeezed.

“There is a direct link between change and no change – this latest rate hike is a huge disappointment for the housing market as we were hoping the Bank would trust its own data and leave it alone,” says North London property manager Jeremy Leaf. agent and former chairman of residential RICS.

“Overall, the economy still feels rather weak as real incomes are falling, so we would like to see the interest rate not rise at least for a month.”

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