House prices – Up or Down?

Homeowners, along with those trying to get on the property ladder, will already be tuned into the debate over whether house prices will continue to rise or that we are likely to have a fall or a gentler readjustment. It’s thought that some first-time buyers could hold off as they wait to see what happens to the market.¹

The difficulties faced by first time buyers are already well known with prices having continued to track higher while incomes and deposits have failed to keep pace¹. But are we now getting near a tipping point where a house price fall could become a reality?

On the one hand, we have reports from leading economists that tell us that UK house prices will fall by up to 10pc as interest rate rises will cause a global property crash².

However, a report from Ernst & Young in June predicts that UK house prices will rise 8% over the course of 2022, followed by growth of 1.8% and 1.2% in 2023 and 2024³.

That prediction strongly contradicts the kind of contraction outlined by Capital Economics above despite the evidence of inflationary pressures and a cost of living squeeze. So, who is right?

Ernst & Young points out that while growth in house prices will be slowed down over the next three years by stretched affordability, rising mortgage rates and falling household incomes, the perennial issue of the shortage of housing stock, low unemployment and the unequal effects of cost of living pressures will stop prices from falling³.

Estate agencies are also reporting a drop in new instructions. A recent survey by the estate agency Savills found that nine in 10 current house hunters have had their search affected by a lack of available properties⁴. In addition, the trade body Propertymark reported its members had an average of 22 properties for sale per branch in May, compared to 50 in a normal year⁵.

With two contradictory views from professional researchers above, at this time, provided there is an imbalance between supply and demand, property prices will continue to be stable in the short term. Making longer term predictions however, with the economic situation so volatile, could be very much a gambler’s punt.

Sources

1. Smith, H (2022) When will house prices fall?. Available at:  https://www.thetimes.co.uk/money-mentor/article/will-house-prices-drop/#:~:text=This%20could%20in%20turn%20push,falling%20by%205%25%20in%202023 (Accessed 26^th Jul 2022)
2. Canocchi, C. (2022) Boom to Bust? House prices in Britain could fall up to 10% ‘soon’ Economists warn. Available at: https://www.thisismoney.co.uk/money/mortgageshome/article-11002381/House-prices-fall-10-soon-rates-rise-economists-warn.html (Accessed 26th Jul 2022)
3. Ernst & Young (2022) UK house prices set for continued growth despite economic slowdown, says EY. Available at: https://www.ey.com/en_uk/news/2022/06/uk-house-prices-set-for-continued-growth-despite-economic-slowdown-says-ey-item-club (Accessed 26th Jul 2022)
4. Shaw, V (2022) Nine in 10 house-hunters say lack of stock is negatively affecting search. Available at: https://www.independent.co.uk/money/nine-in-10-househunters-say-lack-of-stock-is-negatively-affecting-search-b2019546.html (Accessed 26th Jul 2022)
5. PropertyMark (2022) Housing Report May 2022. Available at: https://www.propertymark.co.uk/asset/0E44995C-CE61-4474-8111311A757495C2/ (Accessed 26^th Jul 2022)