Now as we enter 2023, there’s no doubt the property market finds itself bruised and battered. Resilient as it has been, the mini-budget in September was the final straw. Combined with the cost of living crisis, political turmoil, and the increase in base rates, it all meant the market ended 2022 with demand and prices heading downward.
Last month saw agents taking 25% fewer enquiries from Rightmove and Zoopla compared to 2021. First time buyers are also now holding back, in part because lending criteria has tightened meaning many now cannot buy. Others, meanwhile, are awaiting developments, and hoping prices may fall further. It is estimated that 30% fewer first time buyers are enquiring compared to the same time last year.
When trying to anticipate what might happen to prices during this year it’s really important to remember a few things….
Firstly, buying a property, especially if it’s a home, is a long-term decision. Mortgages are for 25 or 30 years, and most people will only move a few times in their life. And, although we all love a bargain, think of a property as a home first, and an ‘investment’ second.
The second thing to remember is that whatever is happening to the price, it only becomes important when you sell and when the loss or gain is realised. You can drive yourself crazy by following the reports on projected house price changes. In reality, it’s a dinner party conversation and only becomes an issue if and when you make a move.
Thirdly, it’s important to remember that prices are only part of the issue. If they fall but interest rates rise, you could be worse off than if you bought higher, at a lower mortgage rate.
One thing that I’ve always found is that if the property market is left to its own devices, it will find its own level. More often than not, all property will be priced at a level buyers will be able to afford, using a blend of cash and borrowed money to bankroll their purchases. It tends to be when there is government intervention – slashing interest rates, offering Stamp Duty holidays, Help2Buy etc. – that prices rise faster and lose parity with wages.
Conversely, Government policy can also work the other way – the mini budget for example being one of the best recent examples. Bad policies make the market drop faster than it otherwise would.
Finally, we must remember the issues related to ‘herd mentality’. The more something happens, the more it happens. When prices rise quickly there is always a clamour to buy, because many fear missing out on gains. Now prices are retreating, many willing and able buyers are holding back, thinking prices may fall further. This can become a self-fulfilling prophecy.
So with all of that in mind, what might happen in the next 12 months?
I believe that there will be a slight recovery in January as the difficulties of 2022 fade in the memory after the Christmas break. That said, the outlook for the first half of the year is not great for prices. We should expect small drops each month for at least the first four to six months. There are reasons to be more optimistic in the second half of the year when activity should increase during the summer months. This will negate some of the price reduction but it’s looking very likely that by the end of 2023 there will have been no increase in prices and perhaps even a fall of up to 6%.
But there are reasons to be more optimistic. In 2022 there were eight interest rate rises, five Housing Ministers, three Prime Ministers and four Chancellors. We had a fuel crisis, a post-pandemic slump and raging inflation. If the property market could withstand all of this, just imagine how easy things might be without such chaos.
The property market has come through tougher times than this, and it will do so again.
*Jonathan Rolande is founder of House Buy Fast and director of the National Association of Property Buyers