The only way is down

Isobelle Roberts • 2 March 2023

House prices to fall by 10% in 2023

House prices have been immune to the economic pressures of Covid and the cost of living crisis. Up until now that is.

The latest data from Nationwide Building Society shows that house prices in the UK declined by 1.1% in February 2023 compared with February 2022. Prices have actually been falling for the last six months but last month was the first time that a year on year fall was recorded.

Other housing market statistics also point to a market in decline. The online sales portal Zoopla reports that 40% of its properties have seen a reduction in asking price, something almost unheard of in the last couple of years. Rightmove has reported that it took an average of 52 days for a home to come under offer in December 2022 compared with 32 days in May 2022.  It's not surprising then that Land Registry data shows that sales in January 2023 were 7% lower than in January 2022.

So what does the future hold? Is this just a blip in the relentless march upwards or is the decline likely to be sustained? Looking at historical data can give us some clues.

The graphic below shows the average annual change in house prices. Values above the shaded area represent a growth in house prices. Anything in the shaded areas denotes a fall in prices. It shows that house price change has always gone up and done but usually the decline represents a slow down in growth rather than a fall in prices.

The graphic shows two occasions when house prices fell. The first was in the early 1990s when high interest rates and high unemployment made owning unaffordable for many first time buyers and existing owners. Consequently, the market was characterised by a slump in sales, negative equity, repossessions and three consecutive years of falling house prices.

Annual percentage change in house prices, 1982-2022, UK

The second house price fall was in 2008 during the 'credit crunch'. The 2008 global financial crisis was mainly caused by banks lending to people whose credit rating was poor and who subsequently defaulted on their repayments. Add to this higher commodity prices and rising levels of unemployment and the UK plunged into a recession lasting 5 consecutive quarters. The result was a lack of mortgage products and a crash of 15% in house prices. Interest rates, however, remained low and the crash lasted little more than one year.


Fast forward to today and we see some similarities with previous crashes. Similar to 2008, mortgage products are in short supply following the fallout from the Truss government 's mini budget in September 2022. Interest rates are increasing (similar to 1990 although at a much lower level) but unlike then, unemployment is comparatively low. This time, however, we have high inflation leading to real term cuts in income and a cost of living crisis. Buying a house is now more unaffordable and the uncertain economic outlook means people are either unable or unwilling to risk buying a new home.


History tells us that when prices start to fall they end up falling sharply. The decline in sales, lack of viewings and price reductions already working through the system suggests that this time will be no different. A decline in house prices in 2023 of 10% seems possible. If inflation comes down during the year and cheaper mortgages become more common, then we might see a smaller decline in house prices : the Office for Budget Responsibility is forecasting a 9% drop by Q3 of 2024.


The next two years are likely to be tough for the housing market and a far cry from the 'gold rush' of the last few years. For house prices, the only way is down.

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