Warning to agents - more house prices falls expected in 2024

Zoopla is warning that there will be further house price falls in 2024 on top of the 4.5 per cent drop it expects will have happened by the end of 2023.

The portal’s executive director and research chief Richard Donnell says that although house prices have fallen less than many expected given the macro-economic headwinds, the market will need to improve affordability to permit more buyers back and support more sales. 

The portal believes that to see what it calls “a meaningful reset” when it comes to affordability, house prices will need to fall further as incomes increase, assuming mortgage rates remain broadly unchanged for early 2024. 

Assuming mortgage rates drop to 4.5 per cent by the end of next year, Zoopla expects that house price growth will remain negative with prices down 2.0 per cent, and it says that a faster fall in mortgage rates towards 4.0 per cent would boost sales activity rather than house prices. 

“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 less buying power” explains Donnell.

“Modest house price falls over 2023 mean it’s going to take longer for housing affordability to reset to a level where more people start to move home again. Income growth is finally increasing faster than inflation but mortgage rates remain stuck around 5.0 per cent or higher. We believe that house prices will post further small falls, averaging 2.0 per cent, over 2024 with 1m home 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 home moves as consumer confidence returns.“

In terms of the immediate housing market, Zoopla says that the impact of higher mortgage rates and cost of living pressure is now impacting more local areas. 

Weaker demand and reduced buying power have resulted in a rapid cooling of house price growth from an increase of 9.2 per cent a year ago to a drop of 1.1 per cent today, which Zoopla claims “is the most dramatic slowdown in price growth since 2009.” 

Previously concentrated in Southern England, house price falls are now impacting lower-value markets with four out of five local areas registering annual house price falls, up from just one in 20 six months ago. 

The scale of house price falls is limited to low single digits with the largest annual falls registered in commuter towns around London and across the South East - for example, down 3.5 per cent in Colchester and down 3.3 per cent in Luton. 

Of the one in five local markets registering annual house price growth, the highest growth rate is a rise of 3.6 per cent at Halifax in Yorkshire. 

Currently, the number of housing sales is feeling the impact of higher mortgage rates more than house prices - with a 23 per cent reduction in housing sales in 2023 vs 2022. 

Zoopla anticipates housing transactions to stay flat at 1m in 2024, although this could improve if mortgage rates drop back towards 4.0 per cent over the first half of 2024. This would support a modest rebound in activity in the first half of 2024 as people who have delayed moving decide to return to the market.

First-time buyers are on track to be the largest buyer group in 2023, closely followed by cash buyers who will account for one in three sales. 

Looking to 2024, cash buyers will remain an important buyer group alongside first-time buyers who will continue to be pushed into buying by the continued, rapid growth in rents. 

Upsizers are the group most sensitive to higher mortgage rates as they tend to buy bigger homes which require larger mortgages. 

The portal says the risks of big price falls are abating as a reason not to move but higher mortgage rates remain the most important factor. Lower mortgage rates would bring more upsizers in the market in 2024 and support overall sales volumes.