"Achieved prices until spring will reflect deals agreed mostly in 2023 when rates were higher and sentiment weaker. Meaning even if the market feels busier and we see activity and prices rise, it may take a while for the figures to catch up"
- JLL
The mood music in January 2024 feels quite different from early 2023. A year ago, we were staring down the barrel of a tortuous year, with expectations that we would end 2023 worse off than we started. In truth, by the year-end 2023 was not as dire as many (including us) had expected, but sluggish activity and high rates mean most were happy to leave it behind.
Whether it is just the optimism of a new year or something more tangible, there is the feeling that this year we'll be better off at the year-end than the start.
Of course, the outlook for the economy and the housing market isn't driven by sentiment alone. We need to be careful our new year optimism isn't clouding our judgement, but there are some encouraging signs.
Inflation falling back, if not quite following the planned path
Increases in the cost of tobacco and alcohol were contributing factors to December's annual inflation figure, which edged up from 3.9% in November to 4.0%. But the 4.0% figure is still within range, with forecasters expecting the Bank of England will still hit its inflation target of 2% by the spring.
More favourable mortgage rates
2024 has started with some welcome news for borrowers. Best-buy fixed rates have fallen from their 2023 highs, with borrowers in January able to access fixed rates of 4.15% over two years and 4.09% over five according to Lifetime Capital. Those with bigger deposits may even be able to secure a sub-4 % rate. This is still some way off the lows pre-2023 but a welcome relief for homeowners rolling off fixed rates and first-time buyers looking to stretch their budgets.
Increased activity in the sales market
Figures from Rightmove suggest 20% more sales were agreed in the first week of 2024 compared with the same period last year, with average asking prices up +1.3% in the last month. This isn't unusual at this time of year, but the growth rate is more than double the 20-year January average (+0.6%) and is the highest since January 2020 (the time of the short-lived Boris bounce).
Sceptics could argue the way the school holidays fell meant more people were at home and house hunting this year than last, but the latest RICS Survey results support the view that buyers are returning.
Results for December show buyer demand improved for the fourth consecutive month, albeit moving to less negative rather than positive. With a -3% balance in December 2023 meaning a return to neutral territory (Defined by the RICS as figures between -5% and +5%) for the first time since April 2022.
A bit more balance in the rental market
December figures from Homelet show average rents rose 8.0% in the year to December 2023, the lowest annual increase since September 2021. December saw the second consecutive monthly fall in rents of 0.9%. A cooling of the rental market at this time of year isn't unusual so we shouldn't read too much into these figures.
But stock levels are running higher than recent norms and the latest figures from the RICS suggest the imbalance between stock reaching the market and tenant demand is narrowing. Our JLL rental growth forecast expects growth in rents of 5.0% in 2024, down on 2023 levels but higher than historic averages.
Fewer new homes in London
2023 figures from Molior London show the impact of higher debt and build costs alongside an increased regulatory burden on the London new homes market. The number of private housing starts in 2023 is at its lowest since 2010, with 47% fewer units started in 2023 than the previous ten-year average.
Outlook for prices
The Nationwide, Halifax, and ONS show changes in annual house prices which range from -2.1% (ONS to November) to +1.7% (Halifax to December), suggesting little change in prices over the last 12 months.
However, respondents to the RICS survey have been reporting prices falling rather than rising every month since November 2022. Responses were at their most negative in Q3 2023, with the December figure the least negative since November 2022.
This suggests the market could be on the turn, but also that a sluggish market in the second half of 2023 may not be fully reflected in current figures. ONS data includes deals agreed months prior, with the time between offer and completion regularly exceeding four months.
As a result, achieved prices until spring will reflect deals agreed mostly in 2023 when rates were higher and sentiment weaker. Meaning even if the market feels busier and we see activity and prices rise, it may take a while for the figures to catch up.
At JLL we are forecasting a -3% fall in UK house prices in 2024. An early election and potential post-ballot bounce, a few incentives to encourage activity in the spring budget, or an early run of rate cutting by the Bank of England could make us look pessimistic.
But until we know more, we are assuming that base rates will have started to fall back by the summer, and activity will increase. If we follow that trajectory price rises are more likely in the second half of the year, but it could be 2025 before we see this feed into the indices.
