Rapid rebound in house prices unlikely, reveals analysis

Halifax

Nationwide expects house prices to see a low single digit decline or remain broadly flat next year

A rapid rebound in house prices is unlikely in 2024, reveals the latest analysis by Nationwide.

Nationwide expects house prices to see a low single digit decline or remain broadly flat next year.

The analysis mirrors recent research from Halifax, which forecasts that house prices will drop by between -2 per cent and -4 per cent in 2024.

Robert Gardner, Nationwide’s chief economist, said: Housing market activity was weak throughout 2023. The total number of transactions has been running at around 15 per cent below pre-pandemic levels over the last six months, with those involving a mortgage down even more ( around 25 per cent), reflecting the impact of higher borrowing costs. On the flip side, cash transactions have been running above pre-Covid levels.

This subdued picture was also reflected in house prices, which in November were 2 per cent lower than the same period last year, and 4.3 per cent below the all-time high recorded in late summer 2022, he said.

Even though house prices are modestly down and incomes have been increasing strongly, at least in cash terms, this has not been sufficient to offset the impact of higher mortgage rates, which are still over three times the record lows prevailing in 2021 amid the pandemic, he added.

Gardner said: As a result, housing affordability is still stretched. A borrower earning the average UK income and buying a typical FTB property with a 20 per cent deposit would have a monthly mortgage payment equivalent to 38 per cent of take home pay – well above the long run average of 30 per cent.

There have been some encouraging signs for potential buyers recently with mortgage rates dropping. Investors have become more optimistic that the BoE has already hiked rates far enough to return inflation to target and will cut rates in the years ahead. This shift in view is important, as it has brought down longer term interest rates which underpin fixed mortgage rate pricing, he added.

He said: However, a swift bounce back in activity or house prices in 2024 seems unlikely. While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak, and surveyors continue to report subdued levels of new buyer enquiries. Furthermore, while markets are projecting that the next Bank Rate move will be lower, there are still upward risks to interest rates. Inflation is dropping, but measures of domestic price pressures remain far too high.

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