After more than two years of record gains, average UK house prices are now predicted to fall in 2023. But while this may buck the trend of the past couple of years, the likelihood of a major crash remains low.
Even in the face of growing economic uncertainty and an unprecedented living-cost crisis, demand for quality homes in desirable areas of the country remains strong.
October brought the first decline in average UK house prices in 28 months, according to data published by the Royal Institution of Chartered Surveyors. The same survey also found that house price expectations among market watchers and analysts also slumped for the first time in over a year.
Experts now believe that a decline of around 4.7% in average house prices will creep into the equation by the end of next year. This will mark the first annual drop recorded in over a decade and comes in stark contrast to the enormous annual house price gains collected over the past couple of years.
But as average house prices increased by almost 6.3% in 2022 alone, the declines forecast for next year are unlikely to have a huge impact on overall affordability.
“There is a rebalancing, but nothing like we saw after the global financial crisis. Supply is still relatively tight, so that is helping support prices,” said Chris Druce at estate agency Knight Frank.
Data from the Land Registry suggests that while average UK property prices fell by approximately 19% during the last global financial crisis, they have since doubled.
Supply issues continue to fuel higher prices
Several major UK housebuilders have indicated that they have built fewer homes this year than originally planned, due largely to supply chain issues and escalating costs.
Taylor Wimpey Plc said that its housebuilding targets for 2022 would not be met, while Persimmon Plc has predicted 2023 land additions to be lower than in 2022. These and other factors will continue to affect the availability of housing across the UK, fuelling high prices.
Looking further ahead, 2024 is predicted to bring a slight increase in overall property prices: total annual gains of around 1%. After which, a further 3.5% increase has been forecast for 2025.
As polled by Reuters, experts believe that while a housing market crash cannot be ruled out of the equation, the more likely scenario is a correction. More than half of those polled said that the possibility of a crash remained high for the time being but that its impact would not be quite as severe as those experienced in the past.
“We see a one-year correction in 2023, with the economic performance and job numbers a little better than expected. 2023 will be a very difficult year, but life will feel semi-normal in 2024,” said Tony Williams at consultancy Building Value.
Even so, analysts have such wildly differing opinions on what will happen over the next 12 months that forecasting anything with even a slight degree of certainty is almost impossible. In London, experts believe that anything from a 12.5% drop to a 4.0% rise in average house prices could be recorded next year.
“Prices have continued to fall in London due to exacerbated affordability issues. New builds are also likely to plummet in London as build cost inflation and reduced development finance start to bite,” said Mark Farmer at Cast Consultancy.