Will House Prices Fall In 2024

Nikka Sulton

Will House Prices Fall In 2024

The housing market started the year positively, but analysts predict a downturn in 2024. According to the latest Nationwide house price index, average prices rose by 1.2% annually in February 2024. This marks the first yearly increase since January 2023, attributed to the decline in mortgage rates which has encouraged buyers.

Meanwhile, Halifax’s latest house price index, which has shown a more optimistic trend than Nationwide in recent months, reported a 1.7% year-on-year increase in average values for February. Additionally, there was a 0.4% rise from the previous month’s figures. These statistics indicate ongoing fluctuations in the housing market, underscoring the need for careful monitoring and analysis amidst changing economic conditions.

There’s a growing sense of renewed confidence in the housing market, defying earlier predictions of a crash in prices throughout 2023. Despite initial concerns, the market has shown resilience, prompting some commentators to view the current landscape with optimism.

In 2023, mortgage lending reached unprecedented lows, as indicated by data from UK Finance. Notably, mortgage approvals for first-time buyers dwindled to levels unseen in a decade, reflecting the challenging conditions faced by those entering the property market.

Home movers experienced even greater difficulty, with mortgage approvals plummeting to levels reminiscent of the 1970s, as outlined in UK Finance’s fourth quarter household finance review for 2023. This trend underscores the broader challenges confronting individuals seeking to navigate the housing market amidst evolving economic conditions.

Despite a drop in average prices last year, attributed to the cost of living crisis and higher mortgage rates impacting buyer budgets, sellers adjusted prices to attract interest. According to the December Nationwide House Price Index, average property prices saw a 1.8% annual decline, providing the first insights into the market’s performance over the twelve-month period.

In contrast, the December Halifax House Price Index contradicted Nationwide’s findings, indicating a 1.7% increase in prices throughout the year. However, interpreting this as a sign of recovery might be premature, as Halifax attributed the rise to a scarcity of available properties rather than an improvement in buyer demand.

Recent reports suggest a resurgence in buyer activity, driven by falling mortgage rates and decreasing inflation. However, average mortgage rates for two-year and five-year fixed deals hover around the 5% mark, significantly higher than the 2% rates seen at the outset of 2022.

Property website Zoopla maintains its projection of declining house prices in 2024 as the market adjusts to the elevated cost of borrowing. As the property market grapples with its most formidable challenges in decades, what does the outlook hold for the remainder of the year and beyond into 2024?

Is there buyer demand for property?

Throughout much of last year, elevated mortgage rates and the cost of living crisis subdued demand in the housing market. However, the Royal Institution of Chartered Surveyors indicates a resurgence in confidence, fueled by expectations of interest rate cuts.

Zoopla, a property website, reports a 10% annual increase in the number of prospective buyers actively searching for homes at the beginning of 2024. This uptick is attributed to lower mortgage rates and the anticipated earlier-than-expected interest rate cuts.

Despite the uptick in demand, Richard Donnell, Zoopla’s research director, notes that sellers in the UK are typically settling for offers around 95% of the asking price. This adjustment reflects a reduction in buyer purchasing power due to the impact of higher mortgage rates.

“Our data indicates that we’re still in a buyer’s market, making it unlikely for prices to increase nationally in 2024. Despite this, prices have remained relatively stable over the past year, despite a significant increase in mortgage rates since 2021,” he explains.

“We anticipate that house prices will need to adjust to the impact of higher mortgage rates, even as they begin to decline and are expected to reach the 4%-4.5% range later this year,” he continues.

“This necessitates sellers maintaining a realistic outlook on pricing and seeking guidance from estate agents on preparing their homes for sale,” he advises.

Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, cautions against adopting a ‘wait and see’ approach for buyers banking on further declines in mortgage rates and house prices.

“Even with potential reductions in mortgage rates, a surge in buyer and seller activity could intensify competition, potentially driving prices upward,” she points out.

“While lower mortgage rates may offer savings, these could be offset by increased property prices,” she advises.

How is the housing market performing?

House prices saw rapid growth during the pandemic due to factors like stamp duty cuts, low interest rates, and the demand for more space. However, rising interest rates and the cost of living crisis have eroded buyer confidence, leading to a decline in house prices since last year.

Tim Bannister, Rightmove’s director of property science, highlights the ongoing challenges of saving for a deposit and affording higher mortgage payments. According to Nationwide, a person with an average income purchasing a typical first-time buyer home with a 20% deposit would allocate 38% of their take-home pay to their monthly mortgage payment, well above the long-run average of 29%.

According to Zoopla, sellers are increasingly reducing asking prices in order to secure a sale, with the highest rate of reductions seen in five years. On average, buyers are negotiating £18,000 off the asking price of a property.

Although mortgage rates have recently decreased, they remain relatively high, prompting some lenders to withdraw their top deals due to high demand and rising swap rates. Brokers caution that mortgage rates have slightly increased since February 2024, attributed to a rise in the cost of wholesale funding and diminishing expectations of an interest rate cut by the Bank of England.

Data from Moneyfacts reveals that the average two-year fixed mortgage deal currently stands at 5.78%, while the average five-year fix is at 5.34%.

UK house prices vary significantly across regions, as evidenced by recent data. While London saw a 4.8% annual decrease in average prices, the North West experienced the highest annual house price inflation at 1.2%, according to ONS figures. On a monthly basis, the South East witnessed a 1.9% decline in December, while the West Midlands saw a 2.6% increase.

Abi Hookway, wealth coach and director at property investment firm Redmayne Smith, is optimistic about the prospects, noting the substantial property demand in the North of England. She believes this presents an excellent opportunity for property investors seeking significant capital growth.

Additionally, with the Bank of England maintaining the interest rate at 5.25%, there is anticipation that it will gradually decrease over the next year, potentially leading to accelerated growth in house prices.

Bank of England data indicates that mortgage approvals reached a six-month peak in December, hinting at potential activity in the property market in the coming months.

What will happen to house prices in 2024?

The trajectory of the housing market and property prices is significantly influenced by mortgage pricing trends. As inflation decelerates and select mortgage rates dip below 4%, some analysts are revising their forecasts.

Previously projecting a 4% decline in prices, estate agency and property brand Knight Frank now anticipates a 3% increase in prices this year. Similarly, the Office for Budget Responsibility (OBR) has adjusted its outlook, now expecting a more moderate 2% decline in average prices by the end of 2023, compared to its earlier projection of a 5% decrease.

Analysis by Go.Compare suggests that a decline in average mortgage rates to 4.3% could potentially boost house prices by 10.5% for homeowners. However, this outlook appears quite optimistic compared to other forecasts.

Zoopla projects a 2% decrease in UK house prices throughout 2024, based on the assumption that mortgage rates will decrease to 4.5% by the year’s end and remain stable into 2025. Additionally, the property website anticipates around one million property sales in 2024, but suggests this figure could increase if mortgage rates edge closer to 4%.

Meanwhile, Rightmove forecasts a 1% decline in asking prices as sellers adjust their expectations to facilitate sales amidst heightened borrowing costs for prospective buyers.

According to analysts at Capital Economics, they anticipate a 5-6% decline in house prices by mid-2024 due to the expectation that mortgage rates will remain elevated until the following summer.

Lloyds Banking Group shares a similar sentiment, forecasting a continued decline in prices with no recovery expected until 2025, predicting a 2.4% decrease in 2024.

Halifax’s outlook aligns with this trend, predicting a 2-4% decline in house prices for 2024, citing ongoing economic conditions and affordability challenges as contributing factors.

In a separate assessment, Nationwide also anticipates a decline in house prices for 2024, either remaining flat or experiencing a single-digit decrease.

Savills provides a slightly more optimistic view, estimating that the market will reach its lowest point around the middle of the year.

Savills’ latest five-year projections indicate a 3% decline in average house prices for 2024, followed by increases in the subsequent years as affordability challenges gradually ease.

Prime central London is anticipated to experience minimal downward pressure on prices, attributed to lower reliance on mortgage debt and appealing value propositions for affluent domestic and international buyers.

Transaction volumes are forecasted to hover around 1.01 million in 2024, increasing to 1.16 million annually by 2028, as mortgage-dependent buyers re-enter the market gradually.

Lucian Cook, head of residential research at Savills, notes that while interest rates are projected to have peaked and the worst of the price declines may have passed, a rate cut remains distant. This suggests ongoing affordability pressures and potential modest declines in house prices in the first half of 2024, with an overall adjustment expected around -10%.

Cook emphasizes the expectation of a gradual rate reduction, indicating a progressive improvement in purchasing power and a steady recovery in demand over time.