The drop in house prices is being felt across the country, with 80 per cent of local areas recording annual falls, according to Zoopla.
Home value declines were previously concentrated in the south. But now the crisis has spread to lower-value markets, including the East and West Midlands and Yorkshire and Humber, according to Zoopla.
The housing market slowdown is the most serious the real estate website has reported since 2009, after the financial crisis, it says.
Widespread: 4 out of 5 property markets record small annual price drops, says Zoopla
Higher mortgage rates have translated into weaker demand and reduced purchasing power, which in turn has resulted in falling prices.
However, although the housing market has moved from double-digit year-on-year house price growth to a falling market, the magnitude of the declines remains limited so far, according to Zoopla.
Overall, it reports that home prices decline annually by 1.1 percent on average. by factoring the entire country.
The largest annual falls have been recorded in commuter cities around London and the south-east.
For example, house prices have fallen by 3.5 per cent annually in Colchester and 3.3 per cent less annually in Luton.
But no local market has recorded annual price drops of more than 5 percent, according to Zoopla. However, he expects some markets to begin recording similar declines in the coming months amid weaker purchasing power.
While prices have taken a slight hit, it is transaction volumes that have been most affected by higher mortgage rates.
There has been a 23 percent reduction in home sales so far this year compared to the same period last year.
Everything has gone silent: transactions have been hit the hardest and will be 23% lower than in 2022 and Zoopla predicts this will remain largely the same over the next year.
Richard Donnell, CEO of Zoopla, says: ‘House prices have proven more resilient than many expected over the last year in response to higher mortgage rates.
‘However, almost a quarter fewer people will move home due to greater uncertainty and lower purchasing power.
‘Modest house price falls throughout 2023 mean that housing affordability will take longer to restore to a level where more people start moving again.
“Income growth is finally rising faster than inflation, but mortgage rates remain stuck at around 5 percent or higher.”
What awaits us?
According to Zoopla, rising mortgage rates over the past 18 months have been the main driver of the current overvaluation of home values.
Home prices must fall further and incomes rise, or mortgage rates must fall further to restore affordability and support demand or sales.
The fact that house prices have fallen less than expected during 2023, combined with mortgage rates of 5 percent, means that purchasing a property is still relatively expensive for the average household.
Assuming mortgage rates remain at their current level, Zoopla predicts UK house price falls will remain in the low single digits for the next one to two years.
It also expects housing transactions to remain stable at around one million in 2024, although this could improve if mortgage rates fall back to 4 percent during the first half of 2024.
This, they say, will support a modest rebound in activity in the first half of 2024, as people who have delayed their move decide to return to the market.
Donnell adds: “We believe house prices will see further small declines, averaging 2 per cent, in 2024, with one million moves.”
“Slow house price growth and rising incomes over the next 12 to 18 months will improve affordability to levels last seen a decade ago, creating the potential for a rebound in housing moves as consumer confidence returns.”
Should people delay or buy in 2024?
Zoopla says there are sections of the population who are still keen to move.
However, they have been biding their time in 2023 and waiting for the outlook to become clearer, particularly the likely path of mortgage rates and home prices.
Upsizers are likely to remain the group most sensitive to higher mortgage rates, as they tend to buy larger homes that require larger mortgages.
However, those buying with a view to staying in the property long-term should not have much to fear from the current crisis, according to Karl Knipe, director of estate agency Kings Group.
“Very low, single-digit price increases or decreases make no difference when it comes to purchasing a home that you will live in for many years,” Knipe said, “it shouldn’t be relevant.”
‘Forecasts show that 2024 looks set to be a similar year to 2023, so if you want or need to move and buy your own ‘castle’, now is the time to do your homework and put yourself in the best position for the new year in in terms of knowledge, finances and skills.
“This will ensure that you are prepared to move quickly if you find a home that suits your needs.”
Negative territory: Zoopla says average house price inflation has slowed from 9.6% to -1.1% over the last year
Next year, first-time buyers will continue to be pushed to buy by continued rapid rental growth, according to Zoopla.
Nicholas Mendes, mortgage technical director at John Charcol, broadly agrees.
He says: ‘Buying a property gives you more security than renting and allows you to invest in your future by building equity, rather than filling someone else’s pocket.
‘Trying to determine the right time to buy a home is impossible. For example, if rates went down a year from now, would the property you want still be on the market?
‘If property prices fell you could find yourself with like-minded potential buyers all bidding on the same property.
“Property values fluctuate, but history shows that UK property values will inevitably rise, allowing you to make a profit on your initial contribution and giving you more options for the future.”
Zoopla expects house price-to-income ratios to fall again to levels not seen in a decade, setting up the property market for a rebound in activity as buyers become more confident.
Cash buyers will also continue to be an important group of buyers next year, according to Zoopla.
Nigel Bishop, of buying agency Recoco Property Search, says: ‘The UK property market, particularly at the top end where properties cost a minimum of £1 million, has seen a notable increase in cash buyers over the last year.
‘This rise has been driven by less favorable interest rates and, with rates unlikely to decline any time soon, will continue into 2024.
“The presence of more cash buyers could create greater challenges for buyers who rely on a mortgage, as some sellers prefer cash transactions for their chain-free nature, often resulting in a faster sales process in general”.
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