What’s Happening in the Property Market?

In day-to-day conversations with clients, friends and even my dear old mum, what people think is happening in any market is very different what’s actually happening in said market.

And who can blame them? The daily news cycle only focuses on threats, risks and scandals.

A case in point

Since the start of the year and in spite of the economic backdrop, the Great Companies of the UK (measured by the FTSE All Share Index) are up, as are their US cousins in the S&P500 Index.

We’ve no idea where prices will go next but it’s important to accept that the market and the prevailing narrative aren’t always in synch.

The property market on the other hand seems to be a different matter. Everyone and their dog has their finger on the pulse, but here’s some perspective….

Where are we right now?

The latest figures from Halifax show that prices fell by 1.5 per cent in December 2022, taking the average UK property value to £281,272.

That was the fourth monthly decline in succession, which is staggering when you think that even a global pandemic failed to stop house prices rising.

Figures also showed that on a year-by-year basis, house price growth slowed from 4.6 per cent in November to just two per cent in December, the slowest annual increase since October 2019 (no, me neither).

How did we get here again?

Rising interest rates. High inflation prompted the Bank of England to increase interest rates nine times in the last year, so they now stand at a 14-year high of 3.5 per cent.

The Mini Budget lingers. The adverse response of the markets to September’s Mini Budget led to mortgage rates going up, and although they’ve calmed, it had an instant impact on demand.

Cost of living crisis. Although inflation is tipped to fall off the coming months, it remains at 10.7 per cent – well above the Bank of England’s target of two per cent, and incomes aren’t stretching as far.

Consumer confidence. Soaring prices and the prospect of a long recession have had a huge impact on consumer confidence, which according to research by GfK, is at its lowest sustained level in nearly half a century.

All of these factors resulted in less demand for mortgages and property, so prices have inevitably slowed.

What happens next?

Even if the UK manages to avoid recession this year, none of the problems outlined will be overcome in the next few months.

As a result, Halifax expects house prices to fall by about eight per cent over the course of 2023.

However, it stresses that a drop of this size would take average house prices down to where they were in April 2021, when they were still “significantly above” pre-pandemic levels.

The Guild of Property Professionals, has insisted there’s “no panic”. A correction in the market had been expected following two years of inflated house prices.

“Fortunately for sellers, the demand for quality housing is still high, and many areas of the country are still seeing a shortage of stock, which will keep prices buoyant enough in the months ahead,” said Chief Executive Iain McKenzie.

The government has committed to halving the rate of inflation in 2023, which is in line with independent forecasts. In short, the cost of living crisis and consumer confidence will be the key factors that influence house prices over the coming months.

Back to my dear old mum

I’ve bored her senseless with charts and graphs that prove owning a property (despite the gloom) and a portfolio of the Great Brands of the World is the most reliable route to a comfortable life and a dignified retirement.

She gets it but feels it doesn’t make her financial choices and investment decisions appear any less daunting. It’s all too much and things seem to change so quickly.

I suggested she search for a reputable FCA-regulated financial adviser with the expertise and know-how to help make sense of it all.

Oh wait, hold on a second….

Mind how you go.

Simon (a reputable FCA-regulated financial adviser)