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21 Jun 2022

Residential Property

Temperatures might be on the rise but is the housing market set to cool off this summer?

Following two red hot years of record highs in the UK housing market, are we seeing signs of a slowdown as we approach the warmer months? Jamie Beese, associate solicitor in our Residential Property team, gives his view on whether house prices in the UK market will finally start to drop this summer.

There is no doubt that the housing market in the UK has been on a crazy ride since the start of the pandemic two and a half years ago. Despite the uncertainty over the global economy and the hikes in the cost of living, house prices have defied the odds and have continued to soar.

Compared to pre-pandemic norms, the housing market is still much busier than it was before Covid and high levels of buyer demand has meant that the market is still moving quickly. Yet in recent weeks the market has started to see an increase in supply and reductions in asking prices. Significantly, the time taken to achieve a sale is also starting to rise across most property types in most locations.

Could these be signs that house price rises are beginning to slow down?

Cost of living

While the current cost of living crisis appears to have had little impact on the housing market so far, it is sure to have an effect soon, with more and more people worrying about their personal finances, soaring inflation, energy price rises and increasing interest rates. The Bank of England has increased interest rates four times since December, ultimately making it more expensive to buy a house, so we are likely to see a dip in consumer confidence this year. As spiralling inflation and increased borrowing costs continue to stretch buyer affordability, we expect to see more evidence of house price moderation in the months ahead.

The latest Halifax House Price Index revealed that house prices saw their eleventh consecutive  monthly rise in May but only by 1%, taking the average house price in the UK to £289,099. Annual growth is at 10.5% but this is the slowest rate of growth seen since the start of the year.

‘Race for space’ slows down with return to workplace

The ‘race for space’, which saw more people looking for bigger properties following the move to working from home, pushed up the price of detached properties by £68,000 – a 22% rise – since the start of the pandemic, according to Nationwide. However, with many more employees now returning to the workplace for at least part of the working week, this has slowed down considerably in recent months. Whereas 15% of movers in 2021 were looking to escape the hustle and bustle of urban life, this figure has dropped to 12% this year.

Summer months will be the acid test

The latest RICS survey showed that almost two thirds of surveyors (62%) expect house prices to rise over the next twelve months, citing the price reductions on property portals as an early indication that the market is slowing down.

The acid test for the market will be the run-up to the summer. Traditionally a hive of activity, sellers will be hoping for current transaction levels and price growth to prevail. Some experts believe that house prices will be shielded from current pressures for the remainder of 2022, with reality starting to bite in 2023 if current market conditions persist. On the flip side, a slowdown would certainly be welcomed by buyers, particularly those who are buying for the first time or who are looking to buy before renovating a house.

Number of listings is on the rise

Another factor which is affecting house prices is that the number of listings is finally starting to rise. According to Knight Frank, there was a 19.2% increase in the number of new listings between January and April in England and Wales. Interestingly, supply is building much more quickly in rural areas than in urban markets, with the growth in new properties for sale in Wales jumping by a third while in London there was an increase of only 5.7%.

With more properties on the market, it will become increasingly difficult for sellers to market their properties at an inflated price and we are certainly seeing early signs that the asking price of overpriced properties that are not achieving any offers are now having to be adjusted to generate new interest.

Where are house prices rising the most?

Despite the rest of the UK showing signs of a slowdown sometime this year, it remains to be seen whether Wales will follow suit. We have seen the highest rate of growth so far in the UK in 2022, with May representing the 16th consecutive month of house price growth. The average property price in Wales now stands at £216,120 and in all areas of Wales, the demand is highest for 3 bedroom family homes as families look to upsize before the start of the new school year.

While the market in Wales is unlikely to see a huge change in the coming months, the signs are there that a slowdown is on its way so I would be very surprised if house price growth is not back down to more normal levels here by the autumn.

Get in touch

If you are looking to buy or sell your property, give one of our friendly, experienced team a call on 01633 235145 or 02922 676819, or get a quick conveyancing quote at www.hardingevans.com/services/residential-property

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