Events are moving quickly in the worlds of both politics and the financial markets and against this backdrop, you would be forgiven for feeling uncertain about the prospects for the property market in 2023. The big unknown is how much further the Bank of England will need to push the base rate to bring inflation under control. We caught up with Alasdair Dunne, our head of residential and rural agency to find out his thoughts on the housing market for the remainder of 2023.
“2022 was a turbulent year for the property market with house prices rising then falling, interest rates soaring and rental prices continuing to grow. I don’t think the housing market has ever been more difficult to interpret and there is no exact answer to what the housing market will look like for the remainder of 2023. Inevitably, there is a huge amount of noise about transactional volume and lending rates which creates confusion about what the future holds for those who plan to buy and sell this year.
“Let’s start with the relationship between inflation, interest rates and house prices. In its simplest form, inflationary pressure necessitates interest rate rises which makes borrowing more expensive. So, house prices, in effect, need to fall if people are to be able to buy following their pre-inflation plans. This is what has happened over the last few months. We don’t need to look too far back to trace the catalyst of the current price pressures. The mini-budget set interest rates rocketing and confidence falling, and whilst it would be fair to say that its dramatic effects are now working their way out of the system, there will undoubtedly be further bumps in the road.
“We could see clear evidence that longer-term lending rates were beginning to settle in May following Andrew Bailey’s suggestion that inflation was under control. However, in later May it was reported that the April inflation rate had only dropped to 8.7% (down from 10.1% in March) this was slightly out of kilter with Bailey’s predictions and economists were quick to speculate that we should anticipate further base rate rises. If we ever needed a good example of how jittery the lending markets are at the moment, this was it, borrowing costs rose sharply and the Banks quickly withdrew their most competitive mortgage products. It would be fair to conclude that should inflation fall by a greater than-anticipated percentage in May lending rates will once again steady and begin to fall.
“Take a step back, and inflation will inevitably drop, it will just take a little longer. The most persistent pressure is from food prices, and of course, it takes some time for things like cheaper fuel and energy prices to translate through to cheaper prices on supermarket shelves. I would suggest that we can probably see our current somewhat jittery market conditions as a natural conclusion following the extraordinary “race for space” pandemic-driven market. We’ve just reached this point after travelling a particularly rocky road, rather than a more palatable and steadier transition.
“Going back to that relationship between house prices, interest rates, and inflation: prices can effectively fall if they stay at the same level in a period where interest rates are rising. It’s worth remembering that even a 10% fall in house prices takes us back to levels we saw in early summer 2021. On that basis, if you aren’t a recent mover, then the landscape, as far as price is concerned, hasn’t changed for you. A market correction following a rapid spike isn’t unusual. It is also worth noting that house buyers and sellers hate treading water, and many have found the need to be spectators over the autumn and winter and are ready to get moving.
“Our experience is that whilst slightly fewer people are registering as buyers, those who are, are extremely active resulting in our viewing’s numbers tracking at a higher level than they were 12 months ago. The number of properties being offered for sale is improving in the village and country homes market that we operate in, demonstrating underlying confidence and a good deal of positivity. Well-priced
properties are selling very well, so I would suggest that you can put your moving plans into action and whilst your shorter-term costs may be a little higher there is plenty of activity and plenty of opportunities.
Click here for more information about our wide range of agency consultancy services and to use our residential and rural property search.
