How are house prices going to perform in 2023? Well, there’s no question prices are in for a correction. While that’s good news for first-time-buyers who can pick up some bargains (this one-bedroom flat in the heart of Salford’s Media City UK, a short walk from Manchester’s city centre, is up for sale with us for £155,000 — it’s a perfect starter-sized flat),
We think the market is unnecessarily nervous.
Here are the five reasons that we aren’t seeing double-digit house price falls.
JOBS: The labour market is very strong. By historical standards, the unemployment rate remains low and the UK labour market “remains resilient”: over the year, the unemployment rate fell to 3.7%. The rate of economic inactivity dropped by 0.1%. The number of redundancies remains low. The number of UK job vacancies remains at historically high levels, according to the ONS. In the last quarter of 2022, the number of employees on payroll increased by 28,000, putting the salaried workforce above pre-pandemic levels. People without jobs can’t afford to buy homes.
THE ECONOMY: The economy kept growing in November, suggesting it might not have been in recession in the last half of last year. And China’s relaxation of Covid restrictions means that the world’s biggest tourism spenders are back, which is good news for tourism destinations everywhere, including the UK.
MORTGAGES: In September, Kwasi Kwarteng delivered his disastrous Ministerial Statement entitled "The Growth Plan". The market reacted accordingly and it blew apart mortgage affordability. Mortgage rates reached their highest levels since 2010, over four times higher than the lows prevailing in 2021.
Now, mortgage rates are falling again. The average two-year fixed rates mortgage deal has dropped from 6.65 per cent in October to 5.63 per cent. Even at the start of this month, rates were still 5.79 per cent. The average five-year fixed rate saw the largest fall on Moneyfact’s records in December as fixed-rates fell for the first time in over 12 months. Having fallen by 0.52 per cent over the month, the average five-year fixed rate currently sits at about 5.8 per cent. A brief glance at SWAP rates highlights continued room for improvement in product rates.
There are many more mortgages available for buyers to choose from. The total number of residential mortgage products has now risen to 3,600, rebounding by 1,472 since the fiasco of the mini-budget. In October, the total product count was 2,258, the lowest in over 10 years, as lenders withdrew swathes of products amid rising interest rates and increasing market uncertainty.
FIXES: in the short term changes in mortgage interest rates don’t impact current mortgage borrowers, since the majority are on a fixed term mortgage — about five in every six existing mortgage holders (83%), typically for between 2 and 5 years. To put that in context, in 2005, fixed rate mortgages made up around a third (35%) of the new mortgage lending market. While there will be demand for refinancing this year, the low percentage of variable rate mortgages is helping to mitigate the effect of recent surges in mortgage rates. There won’t be so many forced sales this time
DEMAND: Buyers are already beginning to return to the housing market and demand is picking up. According to Rightmove, demand from buyers rose 55 per cent this month, compared with the two weeks before Christmas. They said the number of buyer inquiries was also 4% higher than during the same period in 2019. They also said the asking prices of properties had risen by more than expected this month, and two months of decline and we predict this trend to continue in the short term.
The market is unfreezing. Asking prices rose by more than expected in January after two months of decline. We expect that trend to continue. Sellers should put their property on the market now, confident that they will secure a good price for it. It’s time to come in from the cold.