As in much of the world, inflation has risen in the UK, which is why the Bank of England is continuing a series of interest rate hikes just as the economy slips into recession. This has created a bigger hole in the wallets of indebted consumers.
House prices fell for the first time in 28 months in October, according to a study by the Royal Institution of Chartered Surveyors, which also showed expectations for house prices in 12 months’ time have collapsed.
They will fall 4.7% next year nationally, marking the first annual decline in more than a decade, after likely rising 6.3% this year, according to the 8-24 survey. November among 20 property market specialists.
“There is some rebalancing, but nothing like what we saw after the global financial crisis. Supply remains relatively tight, which is helping to support prices,” said Chris Druce of estate agency Knight Frank.
During the financial crisis, house prices fell about 19% from top to bottom, but have since roughly doubled, according to land registry data.
British housebuilder Taylor Wimpey Plc said earlier this month it would build fewer homes this year than originally planned, while rival Persimmon Plc said it expected land supply in 2023 to be significantly lower, likely to weigh on supply.
Prices will experience a modest recovery, rising by 1.0% in 2024 – well behind the headline inflation forecast – and then by 3.5% in 2025.
Asked about the likelihood of a price drop within the year, nine out of 16 respondents said it was high or very high. Seven answered that it was weak or very weak. But many of those who said the likelihood was high noted that it would be more of a correction than a crash.
“We see a one-year correction in 2023, with economic performance and employment figures slightly better than expected. 2023 will be a very difficult year, but life will seem semi-normal in 2024,” Tony said. Williams from the consultancy firm Building Value.
The BoE has raised the discount rate from 0.10% to 3.00% in less than a year, a pandemic-era high, and is expected to add another 50 basis points next month, according to another Reuters poll, making borrowing even more expensive.
When asked how much prices would fall from top to bottom, the median response was 10%, but that still wouldn’t be enough to make housing affordable — as a group, analysts said prices would need to fall by 15% to achieve this.
The top to bottom forecast was in the range of 2.0% to 17.5%.
Assessing the value of national house prices on a scale of 1 to 10, ranging from extremely cheap to extremely expensive, the average analyst response was 8, up from August’s estimate of 7. London, she remained unchanged at 8.
London, normally buoyed by foreign investment and a lack of supply, the median forecast showed prices falling 7.0% next year. They will then stagnate in 2024 and increase by 4.0% in 2025, according to the study.
Forecasts for next year ranged from a 12.5% decline to a 4.0% rise, underscoring the market’s uncertainty.
“Prices have yet to fall in London due to worsening affordability concerns. New builds are also likely to fall in London as building cost inflation and reduced development funding start to bite,” says Mark Farmer of Cast Consultancy.
(For more articles from Reuters Quarterly Housing Market Surveys:)