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House prices ‘will not rebound’, leading economists warn

The latest prediction from S&P Global Ratings is that prices will fall 12% by the end of next year.

David Callaghan

house prices

Economists warn that house prices will not rebound after the current slowdown unless interest rates come down dramatically.

Home loan borrowers will continue to face the highest mortgage costs in a decade, and this will hold any recovery back, according to S&P Global Ratings, the Daily Telegraph reports.

S&P warned that the value of homes will fall by 12% by the end of next year, saying there was “little prospect” of a recovery.

“There is still some time to go before mortgage pain reaches its peak.”

UK house prices will fall by 6.6% in 2023, and then by a further 4.9% next year, the credit rating agency says.

S&P expects the market will stagnate in the next three years, with price growth of just 1.4% and 3% in 2025 and 2026.

“There is still some time to go before mortgage pain reaches its peak,” S&P says.

Gloomy

The gloomy forecast comes despite a lower inflation figure announced this week, with a fall from 8.7 to 7.9% in June.

Meanwhile, NatWest says it will increase mortgage rates despite the lower inflation figure, and hopes of price reductions.

The bank said it will raise some fixed rate deals by up to 0.3% from today.

There are some predictions that the Bank of England may slow interest rate rises now inflation has come down. But the Government is still well short of its inflation target of 2%.

Upward march

Andrew Wishart, Senior Property Economist, Capital Economics

Andrew Wishart, senior property economist at Capital Economics, says: “The lower-than-expected CPI inflation data for June probably signals the end of the upward march in mortgage rates.

“But mortgage rates are likely to plateau rather than fall as the Bank of England keeps interest rates high until next summer and lenders rebuild their margins.”

July 21, 2023

3 comments

  1. The ‘why’ question is easily answered. ‘Cause and effect’ is often more interesting than ‘supply and demand’. It was Rishi’s Stamp Duty Holiday that did that. He created conditions that effectively meant supply would dry up. Following COVID, there was already pent-up demand. Many people would have wanted to move home for whatever reason. But, the people considering selling their homes maybe a few months later jumped on the bandwagon and brought their plans forward to benefit from the time-dated benefit, creating a sales boom. People who would have been selling 6 months down the line were faced with very few homes to buy, and in turn, they felt unable to put their own homes on the market. Therefore, there was always, also, pent-up supply.

    Capital Economics has been wildly wrong in the past, I agree. I wish that I had diarised their wilder pontifications over the years. The cost of living has increased significantly, but wages (for many) have been increasing as well. Oh, to be a train driver. Everyone has to live somewhere. Renting – you can’t fix rent, but you can protect your mortgage payments. Renting is often more costly each month than buying would be for a similar home. These are balancing factors that, to my inexpert mind, suggest that other parts of the economy will suffer more than property values.

    However, you can’t ignore the impact of even £400 a month out of a household budget (= to an £80k mortgage at 3.5%). Something has to give. I suspect that holidays, eating out, entertainment etc will suffer. People working in those industries will, therefore, suffer too. That won’t be good for the overall economy in the medium to long term. Against that background, I can’t see property prices increasing. I think they will still fall, but not to the extent many predict.

    To maintain transaction levels, be very careful not to agree to vendor requests to ‘test the market’. I truly believe that won’t work for most and that you will spend your resources for no return. Yes, in a rising market, no when it’s falling. You’ll end up with many fed-up vendors you’ll have to service, and 3 months down the line, they’ll likely sell for less than they could have achieved today, but through a different agent!

  2. I have to say, I completely agree with Richard.
    The economists and “experts” predicted the market was going to crash following covid and it went the complete opposite way. What the economists should be asking themselves is why? The simple fact is the market is driven by supply and demand. The demand that we had 6 months ago has not dried up and gone away, it is still there but holding back and remaining cautious, yes due to rising interest rates and cost of living, but nevertheless it is still there and pent up. As soon as the good news starts to flow again, be that interest rates falling and better mortgage deals or just people feeling better at falling inflation and having more money in their pockets, the market will recover and take off quickly again and all that pent up demand will rush back into the market.
    Maybe the ‘expert economists’ should speak to people that are involved in the every day property market and are talking to the buyers and sellers rather than sitting around looking at economic charts and graphs!

  3. We’ve been here before with ‘leading economists’ It would be great if someone monitored these predictions and when they prove to be wrong, (I’m sure there will be a very good reason) people particularly the press would no longer refer to them as ‘Leading economists’.
    My experience since 2015 is that the ‘leading economists’ continue to get it wrong again and again and again.

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