The Year Ahead for House Prices
House prices likely to flatline in 2024
Depending on what source you look at, UK house prices in 2023 were either slightly up or slightly down. Whichever way you look at it though, the market seemed to defy expectations of a huge drop in prices.
In this article we look ahead to see what might happen to house prices in 2024.
Background
During 2023 house prices either dropped year on year by 1.8% (Nationwide BS) or increased by 1.7% (Halifax HPI). These figures are based upon properties on which a mortgage was granted so differences will reflect each bank's lending criteria. The more authoritative source is the Land Registry, where sales of all houses whether by mortgage or cash are registered. The Land Registry data lags behind the Halifax and Nationwide but the most recent figures shows that UK house prices fell by 2.1% in the 12 months to November 2023. This is a far cry from the 10% many predicted as the cost of living crisis began to bight hard in 2023.
The economy
In 2024, UK house prices are at a pivotal point, influenced by a range of factors including the cost of living crisis, global economic conditions and the historically high ratio of house prices to income. The cost of living crisis, fuelled by inflation and energy costs, is straining household budgets, potentially limiting buyers' ability to afford homes. Globally, economic uncertainties, such as the aftermath of the pandemic and geopolitical tensions, may affect investment and interest rates, further impacting the housing market.
Affordability
The high price-to-income ratio, a longstanding issue in the UK housing market, continues to challenge affordability. Research by the FT calculates that average house prices are over 9 times average earnings. This compares with four times for most of the 1980s and latter part of the 1990s and is at its highest level since 1876.
While this ratio underscores the substantial growth in housing prices over the years, it also highlights the widening gap between house prices and average incomes. Data from Nationwide BS estimates that mortgages now cost 38% of disposable income (over 50% in London and the South East) and that the average deposit is equivalent to a year's salary. This disparity raises concerns about the long-term sustainability of the housing market, as it could lead to a potential market correction if prices become too detached from average earnings.
Interest rates
Interest rates have a significant impact on the UK housing market. 2023 was characterised by increased interest rates adding hundreds of pounds to mortgage payment. In 2024, if interest rates rise again, it could lead to even higher mortgage costs, potentially reducing demand for housing as borrowing becomes more expensive. This might slow down the rate of house price growth, or in some cases, lead to price declines. Ultimately, the direction and magnitude of interest rate changes will play a crucial role in shaping the UK housing market dynamics in 2024.
The general election
The impact of the general election on UK house prices in 2024 can be speculative and multifaceted. Elections often bring uncertainty, which can temporarily slow housing market activity as buyers and sellers wait for policy clarity. The election outcome could influence market confidence and economic policies, affecting interest rates, investment, and consumer spending. Manifesto promises on housing policy, taxation, and broader economic strategies could either bolster or dampen market activity. Historically, market reactions to elections vary, and the specific context of 2024's political landscape will be key in determining its impact on the housing market.
The outlook
Looking ahead, the trajectory of UK house prices in 2024 will likely be shaped by these factors. If the cost of living continues to rise and economic uncertainties persist, there could be a cooling effect on house prices. However, the market's resilience, driven by factors such as limited housing supply and the desire for homeownership, might counterbalance these pressures to some extent.
In conclusion, the UK housing market in 2024 is navigating through a complex landscape. The interplay of the cost of living crisis, global economic trends, and affordability issues will be key in determining the direction of house prices. Based on these issues, our prediction is that house prices will continue to flatline in 2024.
