"The housing market has been more resilient than many expected over 2023 but it hasn’t been a surprise to us"
- Richard Donnell - Zoopla
Zoopla’s latest House Price Index finds that demand is almost one fifth higher (19%) than the same time last year when the higher mortgage rates hit market activity. An increase in available supply of homes for sale is also boosting choice and supporting sales at this time as buyers and sellers are becoming more aligned on pricing. As a result, Zoopla’s House Price Index has recorded a slower pace of annual price declines at -1.1% in November 2023, down from 7.2% a year ago.
Sales hold up in Q4 2023, but why haven’t prices fallen more?
Those using cash to purchase a property are on track to account for a third of all sales in 2023 with mortgaged sales set to be 30% lower as higher mortgage rates hit demand. But with many predicting huge price falls across the year, why has this not happened? The latest Zoopla House Price Index explains that this has not been the case for multiple reasons.
The strength of the labour market has been an important factor with high growth in average earnings - but potential homeowners have undergone tough mortgage affordability testing for new borrowers since 2015 designed to stop households taking on excessive debt at a time of low mortgage rates.
It is this reason that has stopped a major housing overvaluation and built resilience in the market for many households to manage the transition this year to higher mortgage rates.
Buyers look further afield for better value
Zoopla data reveals that the average distance buyers look to move is 4.3 miles, indicating that many focus their home move searches to local areas. Yet a quarter of potential home movers are saying that they plan to move to a different location from where they live today.
In the face of higher borrowing costs in 2024, buyers will continue to look further afield in the search for value - this is particularly the case for people living in high-value markets across southern England where upsizing is the most expensive. Zoopla data shows that almost half of the would-be movers in southern regions are looking to move 10 or more miles in search of their next home as they seek space and better value.
What to expect in 2024
The steady momentum in new sales that has developed over the final part of 2023 will continue into early 2024 alongside the usual seasonal rebound in demand over Q1 2024 as pent-up demand returns to the market.
While mortgage rates are edging lower, affordability remains a key challenge for mortgage-reliant households who are making home-moving decisions. The impact of higher mortgage rates continues to be felt with half of those with mortgages yet to move onto higher rates from cheaper fixed rates agreed before 2022.
The modest decline in house prices over the year means UK housing still looks 10-15% over-valued at the end of 2023. This position will improve over 2024 as incomes rise and house prices drift 2% lower over the year. Sales volumes are expected to hold steady at 1 million sales completions over 2024.
Despite the affordability challenges facing first-time buyers, they will be the largest group of would-be buyers in the next two years as the rapid growth in rent continues to motivate this group. Unsurprisingly average rents have risen faster than average mortgage repayments over the last three years.
Richard Donnell, Executive Director at Zoopla says: “The housing market has been more resilient than many expected over 2023 but it hasn’t been a surprise to us. Mortgage regulations introduced in 2015 have stopped an over-valuation of housing which is why the decline in house prices has been modest over the year.
"House price falls have been concentrated in the south and midlands while prices are still slightly higher over the year in Scotland and Northern Ireland. UK housing still looks expensive by historic standards which is why we expect UK house prices to fall a further 2% over 2024 as prices and incomes re-align.“
