Knight Frank: Housing market is period of ‘price discovery’

It wouldn’t be sensible to jump to a firm conclusion about the prospects of the housing market this side of Christmas, Knight Frank has warned.

New analysis from the agent’s head of UK residential research Tom Bill says the recent monthly price rises recorded in both the Halifax and Nationwide indices can be seen as a sign of strength and weakness.

Both reports may be volatile due to smaller sample sizes, Bill said, and they may simply reflect the fact that sales volumes are currently low compared to recent years

He said: “There tends to be an overreliance on house price movements when assessing the health of the market. Falling house prices do not necessarily indicate a weaker pulse and vice versa.

“The UK housing market is going through a period of ‘price discovery’ as rates normalise after 14 years. Uncertainty over what the Bank of England does next, an approaching General Election and the impact of overseas military conflicts on sentiment are protracting this process.

“It means the number of UK mortgage approvals was more than a third below the five-year average, excluding 2020, in September and transaction volumes were down by just under a quarter. These two statistics tell the story of the current downturn”

Sales volumes have slowed more than prices as buyers and sellers hessite, Bill adds.

He said: “House prices affect wider sentiment and inform the thinking of anyone buying or selling but arguably their biggest importance to the economy is in enabling a liquid housing market.

“The number of cars sold (new and second-hand) is a more informative statistic for UK PLC than the price they are trading at, for example.

“For every 100,000 houses sold, there is a net contribution of £956m to GDP, a Knight Frank study found in 2020.

“We will find out in next week’s Autumn Statement whether the Government has a plan to support this key sector of the economy.”