Houses Prices Set To Cool… Or Are They?

House prices have reached a 17-year high and have been growing at their fastest rate since March 2004.

According to Nationwide, prices have risen by 14.3% in the year to March. This means that it is the strongest pace of increase since March 2004 when the UK experienced a housing boom that preceded the financial crisis.

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The price of an average UK home reached £265,312, meaning it is now more than £33,000 higher than in March 2021.

All the signs have been pointing towards a housing market crash, or at the very least a cool-off.

Inflation is at a 40-year high and is facing upward pressure from a tight labour market. This paired with rising costs of living means consumer confidence is plummeting. The Bank of England has already raised the base since December and is expected to push the rate beyond its current level of 1 percent as it looks to contain inflation.

These economic factors are expected to cool down the housing market, which for the last two years has risen rapidly since it reopened in May 2020 following the COVID 19 lockdowns. On the brighter side, analysts speculate that they are unlikely to cause a price crash like that seen in 2008 or in the late 1980s.

Almost all online news publications seem to agree, that a housing market cool-off is coming. From The Times to Forbes, The Financial Times to The Guardian they are all saying the same thing.

Except for the EY Item Club, who released a press release last week predicting that house prices aren’t going to cool off and are instead actually going to climb higher.

EY Item Club are a UK Economic forecasting group that believes that house prices are going to rise 8% over 2022, then by 1.8% in 2023, and by 1.2% in 2024. They also believe that the average cost of a home will be £282,000 by the end of 2022, £287,000 by the end of 2023, and £291,000 by the end of 2024.

They claim that the cost-of-living crisis and the restricted housing supply will keep a floor on prices.

The EY UK Chief Economist, Peter Arnold, had this to say “While short-term prospects for the wider economy have become gloomier, the same can’t be said for the housing market. In previous economic cycles, a price contraction would be on the cards with incomes squeezed and a high chance of a market correction after two years of out-sized growth. Instead, house prices are set for a softer landing”.

He went on to say that “There are certainly a number of signs pointing to slower price growth though. The ratios of house prices to average incomes, and of average mortgages to incomes, are already at record highs, for example. An increase in the cost of living may also prompt some prospective buyers to become more cautious or to struggle to afford a deposit.”

Mr Arnold continued “But the squeeze on demand is being counterbalanced by a continued squeeze on supply and even a significant, sustained expansion in housebuilding would be unlikely to have a material impact on average prices. Meanwhile, rising interest rates are unlikely to affect homeowners in the same way they would have done previously, with the dominance of fixed-rate mortgages meaning rate changes will take some time to filter through borrowers. Crucially, the economy is also not seeing the high levels of unemployment that have been a key factor in previous house price contractions.”

But are they right? We spoke to Jonathon Christie, joint CEO of The Property Buying Company, a cash house buying service based in Leeds, to see what he had to say.

Jonathon Christie said “Even with potential industry rate rises and the cost-of-living crisis, there still remains a significant lack of supply in the UK housing market. This means that the level of demand will keep prices on the rise, albeit the rate at which house prices increase will slow down in the next couple of years. The rate of house prices won’t slow down drastically in the next couple of years and they will still show a year-on-year increase.”

He went on to say “We also have to keep in mind that whilst mortgage rates are rising, they are still at historically low levels which means that for most people the affordability is still there. So, we are not going to see a drop off in the market, or a housing market crash for these reasons. Whilst the economies tightening and there is a cost-of-living crisis but the lack of supply means that demand is still high which means that we will see prices increase but these will be smaller increases than we’ve seen between 2019 and 2022 when we had a really buoyant market.”

He concluded that “The bottom line is that as long as supply continues to outweigh demand, house prices will still rise.”

This covers everything that you need to know about the potential rise in house prices, if you have any questions, queries, or insight into the subject, please feel free to get in touch!