Zoopla advises that the real estate sector should brace for a continuation of the downward trend in house prices into 2024, following a projected 4.5 percent decline by the close of 2023.
Richard Donnell, Zoopla’s Executive Director and Head of Research, notes that despite the tenacity of house prices amidst economic turbulence, enhancing affordability is essential to re-engage buyers and stimulate sales.
The platform forecasts that a substantial recalibration in affordability will necessitate a further dip in house prices, coupled with income growth—provided mortgage rates stabilise in early 2024.
With mortgage rates anticipated to decrease to 4.5 percent by the end of the subsequent year, Zoopla predicts a sustained negative growth in house prices, with a potential 2.0 percent decrease. Additionally, a quicker descent in mortgage rates to about 4.0 percent could potentially invigorate sales activity over a boost in house prices.
Donnell elucidates that the house market’s resilience has been stronger than anticipated, despite higher mortgage rates leading to a significant reduction—nearly 25 percent—in home relocations due to increased uncertainty and diminished purchasing power.
Subdued house price declines throughout 2023 will likely extend the period needed for housing affordability to adjust to a point that encourages more home moves. Although income growth is outpacing inflation, mortgage rates are persistently hovering around 5.0 percent or more. Consequently, a moderate average fall of 2.0 percent in house prices is anticipated through 2024, with home moves estimated at 1 million.
A gradual uptick in house price growth paired with rising incomes over the forthcoming 12 to 18 months is expected to enhance affordability, harking back to levels not seen in a decade. This improvement is predicted to usher in a resurgence in home moves as consumer confidence is restored.
In the immediate landscape, the confluence of escalated mortgage rates and cost-of-living pressures are now being felt across a wider range of localities.
A swift deceleration in house price growth has been noted, plummeting from a 9.2 percent increment a year prior to a 1.1 percent decline at present—marking the sharpest deceleration since 2009.
Previously localised to Southern England, depreciations in house value are now permeating more modestly priced markets, with four-fifths of local areas reporting annual declines, a stark increase from one in 20 half a year ago.
The magnitude of these declines remains in the lower single digits, with the most pronounced annual drops observed in commuter belts such as Colchester and Luton, down 3.5 and 3.3 percent, respectively.
In contrast, in areas such as Halifax in Yorkshire, there has been an annual increase in house prices, peaking at 3.6 percent.
The volume of housing sales has been disproportionately affected by soaring mortgage rates, recording a 23 percent slump in 2023 compared to the previous year.
Zoopla anticipates housing transactions to level out at 1 million in 2024, with potential for an uptick if mortgage rates retract toward 4.0 percent in the first half of the year. This could trigger a modest revival in market activity as deferred movers re-enter the scene.
In 2023, first-time purchasers are forecasted to dominate the buyer demographic, with cash buyers also playing a substantial role, anticipated to represent one in three transactions.
Looking ahead to 2024, cash buyers will continue to be pivotal, alongside first-time buyers who are likely to be propelled into the market due to the swift ascent in rental prices.
Upsizers, particularly affected by heightened mortgage rates due to the larger mortgages required for bigger properties, could see an increase in market presence if mortgage rates decline, thereby bolstering overall sales volumes.