‘Subdued picture’ remains for housing market - claim

House price falls could continue into 2024 as high interest rates continue to make it difficult for homebuyers to transact, an analyst claims.

Rob Morgan, chief investment analyst at Charles Stanley, said higher rates are dampening market activity.

It comes as the latest RICS Residential Market Survey showed demand and sales metrics are improving but remain in negative territory, while agents are still expecting house price falls over three and 12 months.

Morgan said: “Overall, house prices have proved quite resilient so far despite the huge ramp up in interest rates over the past two years, thanks largely to rising wages and the rental market offering fewer options at affordable prices. However, as today’s RICS survey indicates, activity is subdued with the balance of sales, buyer enquiries and new instructions all negative.

“It is consistent with a picture of transaction volumes drying up and a gently downward trajectory for prices at the national level, something that is likely to accelerate as the era of cheap mortgages disappears further into the rear-view mirror. It would not be a surprise to see price falls continue well into 2024 as more households become affected by rising interest rates and relatively few people can commit to make their first purchase or trade up.

Morgan warns that higher rates are unlikely to disappear in the short-term, which is hitting demand.

He said: “The battle with inflation is far from over, which means the clouds over the economy and the housing market are likely to persist. Although the Bank of England may have reached the end of its cycle of increasing interest rates, they are long way from thinking about cutting them. Inflation is way above the BoE’s 2% target, and geopolitical fractions and wage increases may yet mean it proves stubborn.”

Tom Bill, head of UK residential research at Knight Frank, added: “The story of this housing market slowdown is a double-digit fall in transaction volumes rather than a dramatic price correction. Buyers and sellers are both hesitant as mortgage rates normalise, which has kept price declines in check. Unlike the pandemic or mini-Budget, there is no single reason that activity is weak. 

“Higher rates, the prospect of a general election, conflict in the Middle East and ambiguity over when the bank rate will peak are all sapping sentiment. We expect prices and sales volumes to bottom out next year as the economic backdrop stabilises.”