Hamptons: ‘House prices are correcting not crashing’

House prices won’t fall by as much as the 1990s and 2008 financial crashes but it will take until 2025 for sales to recover to pre-pandemic levels, Hamptons claims.

New forecasts from the agency brand, based on the Land Registry House Price Index, suggest average property values will have fallen by 7.4% when accounting for inflation by the end of this year.

The analysis highlights that this compares to real terms falls of 10.6% in 1990 and 16.5% in 2008.

Hamptons’ forecasts suggest higher mortgage rates, worsening affordability and general economic uncertainty this year will see average house prices decline by 2.5% across Great Britain in the final quarter of 2023, a real terms a 7.4% annual fall.

As mortgage rates gradually fall and households benefit from real income growth, it expects price falls to stop in 2024.  It is forecasting 0.0% price growth by the end of next year followed by a 3% increase by the ned of 2025 and 5% in 2026.

Taking inflation into account, average prices in Great Britain will have declined by almost 10% between the start of 2023 and the end of 2024.  This will contribute to around a 5% decline in real house prices over the next four years, Hamptons said.

Looking at sales, Hamptons is predicting a 19% decline in transactions to 1m this year, but expects slightly lower mortgage rates and improved affordability in 2024 to deliver 1.1m completions in 2024.

Transactions should recover to at least their pre-Covid norm in 2025 as lower mortgage rates unlock moves from previously priced out households, Hamptons predicts.

However, a higher interest rate era will mean that the new norm will be between 1.2m and 1.3m transactions each year, rather than the 1.3m-1.4m that it predicted last year.

Aneisha Beveridge, head of research at Hamptons, said: “Despite rising rates and the cost-of-living crunch catching many households off guard, it’s becoming increasingly clear that the house price crash that some forecasters envisioned hasn’t materialised. 

“Rather, we expect a minor price fall in 2023 followed by a slower recovery over subsequent years as households adjust to an era of higher rates.  This will be more akin to the U-shaped downturn of the early 1990s than the V-shaped crash and subsequent speedy recovery in 2008.
 
“On paper, the house price falls we forecast are minor in nominal terms.  But high inflation for other goods and services means that in real terms, the average price of a home will have fallen around 11% between 2022 and 2024.  This essentially reflects ‘the correction’ caused by higher rates.  It’s also why we expect prices to rise again in both real and nominal terms from 2025 as rates fall to their new normal and a new housing cycle begins.”