Analyst: Don’t assume the housing market will be healthy throughout 2024

A drop in house prices remains likely for 2024 despite recent rises and improving sentiment.

The latest Halifax house price index showed annual price growth has hit a 12-month high while the latest RICS Residential Market Survey suggests improved sentiment among property professionals.

Rob Morgan, chief investment analyst at Charles Stanley, said that while better mortgage deals have boosted affordability in recent months and forced sales have been avoided, it would be wrong to conclude that the housing market will be in a healthy state for the remainder of 2024.

He said: “As recent the recent tick up in optimism shows, the housing market is highly sensitive to interest rates, and the recent downward move in inflation and rate expectations has provided respite to borrowers with better mortgage deals becoming available. 

“Yet the rapid descending trend of inflation, and therefore interest rates to control them, that markets have largely priced in cannot be taken for granted. There is a risk most of the easy wins in controlling price rises are behind us, and an escalation in the geopolitical tensions in the Middle East is one of several potential spanners that could be thrown into the works, not to mention any uncertainty posed by the looming General Election.”

Morgan warns that the sector could also succumb to a weaker jobs market, which has so far proved robust as the UK economy has held up.

He added: “It is now showing signs of softening with vacancies continuing to fall away from the post-pandemic peak and businesses increasingly cautious about hiring plans owing to near-term economic uncertainty. This stands to put further pressure on average earnings and make things harder for those looking for work.

"A further important factor is there are still lots of households with mortgages of a vintage that reflect the very low interest rates of a few years ago. As an increasing number of these roll over into more expensive products, affordability to trade up or move is constrained, thereby stagnating parts of the market. 

“Ultimately, the recent resilience of house prices will be tested by the fact that they remain elevated at a time that mortgage costs continue to put homes out of the reach of many potential buyers. A small fall in prices therefore looks the most likely scenario for 2024 overall."