Has the dreaded slowdown begun? If we’re going by demand figures then, surely, the answer is yes. However, at the same time, prices look relatively stable. Confused? You have every right to be. Let’s take a look at what’s going on.
Starting things off, July and August have seen a slackening in demand. Sales expectations for the coming 12 months have fallen by 36%, down further from the 21% drop in June, according to a survey from the Royal Institution of Chartered Surveyors (RICS). This comes in the wake of the Bank of England (BoE) announcing its steepest rate hike since the mid-1990s.
According to RICS’s report’, “This marks the third successive report in which this indicator has been in negative territory, thereby representing the longest stretch of falling demand seen since the early stages of the pandemic.”
Alongside this, August has seen a small drop in the average house price for the first time this year. Figures just released by Rightmove reveal prices have dropped by 1.3% or £4,795 so far in August.
But that’s not the whole story.
The RICS survey also reveals that the overall trend (aside from the August blip) is still towards rising house prices. And, according to research, fall-throughs are not rising dramatically – something you would expect if the market was about to come screeching to a halt.
What Does This Mean?
This all seems a little contradictory on the face of it, so what can we learn?
Well, first of all, the cost of living crisis and higher interest rates are having an impact on the housing market. Demand has slowed. And half of estate agents report that average selling prices are no longer coming in above the asking price for properties worth up to £500k. Meanwhile, many sellers with properties worth more than £1m are being forced to accept lower offers. It is worth noting, however, that the fall in demand predates the BoE’s interest rate hike.
What about house prices? Well, given it’s such a small drop, the 1.3% fall in prices this month can probably just be attributed to the time of year. August has always been a slow time for the property market; most of us are on a beach somewhere for at least some of the month. So, both buyers and sellers simply put things off until early autumn.
As for projections about prices continuing to rise, it’s the same old story. There is still a huge imbalance between demand for new homes and housing stock. Unsurprisingly, the UK’s crippling shortage of new housing stock hasn’t gotten better with the onset of a cost of living crisis and a possible recession. This means that, while buyer demand has been falling for the past three months, it’s well above where the market was as recently as 2019.
What Does the Future Hold?
A good way to gauge where the housing market is headed is to look at what the industry’s big players are saying. Generally, if they sound particularly alarmed, we should be too. However, most of the housing heavyweights seem remarkably sanguine about what’s happening, if not downright chipper.
Lloyds Banking Group (owner of Halifax) said last month that it was bracing itself for a slowdown but was still expecting lending to grow by single digits in the next 12-18 months. This sentiment is echoed by Right Move, which still expects UK house prices to end 2022 7% up on 2021.
Knight Frank also believes that prices will remain relatively stable throughout the rest of 2022, despite a slight cooling off later in the autumn as holidaymakers return and put their houses on the market, stimulating supply. And even RICS, the author of the report on falling demand thinks that, even with a slight loss of momentum due to economic pressures, prices will be ‘modestly higher’ than current levels in 2023.
All in all, while the next 12 months are unlikely to represent sunlit uplands, they also don’t look so bad. As long as supply remains incredibly low, house prices are likely to remain high, even with what promises to be a long, hard winter around the corner.
Of course, we could all be proven wrong. After all, it’s happened before (most notably in 2008) and trying to predict the impacts of an economic crisis is usually unwise. But, for now, it looks as though the housing market is one of the few sectors of the British economy set to have a stable end to 2022.