House prices to face pressure well into 2024 despite positive updates
Recent data on the UK house prices has been confusing to say the least, but analysts remain confident the market will remain subdued well into 2024.
The latest figures on the state of the housing market, from the online property portal Rightmove, showed house prices had fallen by £6,000 on average over the month to the first week of November.
Although house prices typically fall in November, this was the fastest drop recorded by Rightmove at this time of year for five years.
However, this reading followed two positive updates, from Halifax and Nationwide, which pointed to a surprise monthly increase in house prices.
According to Halifax, house prices climbed 1.1 per cent from September – the first increase in six months. Nationwide’s survey likewise suggested that house prices rose by nearly one per cent.
Both Halifax and Nationwide attributed the rise in prices to weaker supply rather than stronger demand.
The figures from the two lenders are based on transactions using information from their mortgage lending arms, so it’s generally considered to be a more accurate indicator of property prices. Rightmove’s figures are based on asking prices published on the property portal.
Halifax and Nationwide’s readings are supported by figures from the Bank of England.
The central bank recorded just 43,000 mortgage approvals in October, the lowest level since January this year. Mortgage approvals are an indicator of future demand.
Tom Bill, head of UK residential research at Knight Frank commented “the story of this slowdown is a double-digit fall in transactions rather than a dramatic price correction, which has been kept in check by weak supply”.
Christopher Hare, chief economist at HSBC, said recent data does not change their expectation for “modest further house price falls from here”.
“Interest rates do remain elevated, affordability metrics are still stretched, and house price expectations surveys remain well in the red,” he said.
Looking into next year, the path for house prices depends on when the Bank of England decides to start cutting interest rates.
Although rate-setters have been attempting to push back market expectations over recent weeks, traders expect the central bank to start cutting rates from summer next year.
This could support house prices even before rates are cut as mortgage rates are tied to expectations of where interest rates will move in future.
Iwona Hovenko, real estate analyst at Bloomberg Intelligence said “a possibly much lower BoE-rate peak than that expected in the summer, may support house prices bottoming out sooner, with smaller peak to through declines.”
“Given forecasts for quite steep BoE rate cuts in the second half of next year and in 2025, we see some room for relatively-large mortgage rate declines next year, which could support house prices resuming growth from around mid-2024, albeit very moderate,” Hovenko continued.