6th January 2023

THE HOUSING MARKET AND WHAT'S NEXT FOR 2023 Whilst it is very difficult to forecast the future and crystal balls are not easy to come by, it is easy to come to an unbalanced conclusion. Perceptions can be greatly influenced by the media who may have a political bias or create panic and scaremongering through attention grabbing headlines. We have all experienced a wide range of these over the last few challenging years! We however have our own forecast, so read on for our analysis of what maybe instore this year.

In trying to predict the market ahead, it can be useful to look back at factors that have driven the housing market previously or contributed to downturns. House prices had been markedly increasing for quite a few years, with interest rates at very low levels powering the housing market with demand often outstripping supply. A trend that accelerated as we emerged from Covid lockdowns with the stamp duty holiday and continuing low interest rates. Not surprisingly 2022 saw a remarkably buoyant property market for the first three quarters of the year.

Previously the option of cashing in pensions early or releasing funds to purchase buy to let properties as an investment led to lenders exercising little forbearance for their mortgage offers. A laxer attitude to borrowing and affordability assessment also contributed to fluctuations in price, in both a good or bad way depending on if you were buying or selling through these changing markets. Covid had an immediate and marked impact on the economy and housing market, whilst the Brexit fall out will undoubtably have a deeper and prolonged effect on the economy. No one could have legislated for a war in Ukraine, the financial market turbulence which followed the mini-Budget or the recent cost of living crisis.

As a result, high inflation has caused interest rates to increase and cost of living has put a squeeze on household incomes. Uncertainty always causes hesitation with most people sitting on their hands waiting to see how things play out, so naturally there will be a slow-down in the housing market. Experts are not sure how 2023 will play out and forecasts for the housing market vary wildly suggesting possible reductions on prices ranging from 3% to 10%. However, bearing in mind house prices have rocketed over 30% in recent years, regardless of the economy, there had to be a correction in the market to make prices more affordable as real wages struggled to keep up with increasing house prices.

There is talk of base interest rates peaking at 4 / 5% this year but if inflation reduces, this could be reduced early in 2024. Don’t forget lenders are also in competition with each other for business and have targets to meet, so if the level of mortgage uptake goes down, they will review their lending position. They have done very well from a thriving housing market, they will not want to see it suffer for long, nor will the bank of England. 

While the level of employment is strong, the public will continue to spend, however if this changes it can bring another angle to the debate and people could find themselves having to move/downsize and the housing market like many other industries relies on supply and demand, which will often dictate where a property sits with regards to its value. The current labour market has cooled but is expected to continue to be resilient despite challenges in the economy. 

Being on the shop floor, we have operated in many changing markets in the last 50 years, and it is important to have perspective on how the housing market works. The key to deciding when to buy is often based on your personal situation and having a plan for your future. House prices have historically always fluctuated, and it is very rare that prices remain stable for any prolonged period due to what is happening nationally or internationally. Factors such as economic growth, unemployment, mortgage availability, interest rates, consumer confidence and supply are the main factors that affect the housing market. The less property on the market, the more expensive it will become and conversely the greater number of available properties see prices come down until the balance changes again.
Lessons have been learned by government and banking/financial institutions from previous historical housing market crashes/fallouts including the late 1980’s and 2008. As a result, lenders have had to become much more responsible and stringent in their lending practices but are also much more flexible to help with financial plights by implementing several measures, which can include payment holidays/increasing a mortgage term to spread costs. Since the bank of England is independent and free from political influence it is tasked with setting interest rates. It has a finger on the pulse of the economy and will attempt to prevent risks in the financial system, keeping the cost of living stable.

Our advice is always to look at your own situation first and plan for where you expect to be in the next 5 years. If you are in a good place financially and are confident in your job security and career prospects, then go for it. Don’t forget your property requirements will change as you go through life, be it having a family, job relocation, financial, age or health reasons. People will always have a need to move and if you are on the property ladder, your property price and everything else around it will be relative to that time, which will make your decision making clear.

The Dean & Co Team 
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