At the start of the year, it’s common for experts to make predictions as to what might happen to the economy in the year ahead.
Last year, you read the forecasts for house prices in 2022, with most experts correctly suggesting modest growth over the 12-month period.
However, against the backdrop of rising interest rates, a recession, and a cost of living crisis, could house prices be set to fall in 2023?
2022 was “a year of two halves”
During the first half of 2022, house prices in the UK continued to rise sharply, following on from a buoyant 2021. Indeed, Halifax report that the value of the average property had increased by more than £17,500 by June 2022.
However, as inflation and interest rates continued to rise, and as the cost of borrowing also increased sharply, prices began to falter. Halifax say that the UK saw a “flattening” of house prices over the summer of 2022, before the 2.3% decrease recorded in November.
Overall, however, house prices rose across the 12 months. Andrew Asaam, homes director at Halifax says: “It’s important to remember we saw some of the biggest house price increases the market has ever seen over the last few years. Between March 2020 and August 2022, the average house price increased by nearly £55,000 (23%) to £293,992, a new record high.”
The chart below shows the average UK house price over the last three years.
Source: Halifax
With the economic backdrop worsening, however, prices began to fall at the end of 2022. Increased energy costs, double-digit inflation, and sharply rising food prices have all squeezed household budgets, while interest rates rose from 0.25% to 3.5% in 2022, making mortgage borrowing substantially more expensive for many.
This interesting graphic from property experts Savills shows the likely drivers of continued house price falls in 2023.
Source: Savills
This suggests that a combination of rising interest rates, reduced budgets, and lower transactions will see prices fall in 2023 – although Savills do expect prices to then rise slightly in 2024.
Prices set to fall in 2023 – although experts are divided about the level of contraction
At the start of 2022, the consensus among experts was that house prices would rise by around 2% to 3% in 2022. According to Halifax, the rate of growth was slightly higher than this, with values rising by 4.7% in the year to November 2022.
So, what are the experts predicting for 2023?
Considering the tougher economic backdrop as outlined above, most experts forecast property prices to fall in 2023 – although they are divided as to quite how far prices might contract.
Two-thirds of economists surveyed by the Times expected house prices to fall by more than 4% in 2023, with most warning of near-double-digit declines. This would make 2023 the worst year for the housing market since 2009.
Savills are the least optimistic about house prices, expecting nominal price falls of 10% in 2023. They say that a 10% fall “would gradually bring more buyers into the market and allow a return to modest house price growth from 2024 onwards, with a more pronounced rebound in 2026”.
Halifax predict a similar fall, forecasting values will decrease by around 8% in 2023. Although they do point out that this would place the average property price back at roughly the level it was in April 2021, reversing only some of the gains made during the pandemic.
Nationwide are less pessimistic, predicting a “modest decline” of around 5% in 2023, while Rightmove predict that the average asking price in the UK will drop by just 2% in 2023, meaning prices will still be higher than they were after the incredibly busy home-moving period of 2021.
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If you’re looking to buy a property in 2023, or you’re coming to the end of your current mortgage deal, get in touch to find out how we can help you.
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