Following last month's shock price drop, a small price bounce this month may surprise some observers. Moreover, prices rose in all English regions and Scotland, which is highly unusual for this time of year and attests to the resilience of home values despite rising borrowing costs.
A large part of this resilience is because property for sale remains scarce. The total sales stock fell slightly during December and is currently 17% below the 10- year average. The small reduction in stock during the slowest sales month of the year is a result of vendors withdrawing from the market. Speculative and opportunistic vendors are being purged from the post-boom marketplace. A further group of sellers with vacant possession will be opting to rent instead as the market continues to thrive, driven by scarcity and record rents. Supply of new instructions in December was restrained and certainly not indicative of a flood of panic sales.
Perhaps contrary to expectations, properties are not spending longer than usual on the market. While both the median and mean time on the market for unsold property in England and Wales have increased, they have done so simply in line with seasonal expectations. Given the significant number of withdrawals from the sales market over recent months, low numbers of distressed sales and relatively low sales stock levels, residual demand is unlikely to be swamped by supply.
The region most likely to lead price growth in 2023 is Greater London. Relatively low stock levels coupled with a low supply of new instructions (down 8% year-on-year) means that sales properties remain scarce.
Moreover, given that the median price of a flat remains 15% lower than in 2016, there's plenty of room for upward pricing. In addition, when priced in US dollars, London property is offering a significant discount to foreign investors and rental yields are improving rapidly.
Persistent inflation and negative real mortgage rates will continue to support nominal house prices throughout 2023. The post-boom home price correction is occurring in the background while real growth remains firmly negative by either measure of inflation (CPI or RPI).
The rental market continues to thrive. High demand and persistently falling supply will continue to push up monthly rents in most regions in 2023, particularly in London.
The annualised mix-adjusted average asking price growth across England and Wales is now at 1.9%; in January 2022, the annualised rate of increase of home prices was 7.3%. 2022 was clearly a very sobering year for the UK housing market.
Asking prices bounced +0.6% following the steep decline registered last month. The mix-adjusted average rose despite a year-on-year increase in discounting of on-market properties (although compared to pre-COVID years, the number of discounted properties last month remains relatively normal for the time of year). Evidently, while scarcity persists, prices are unlikely to enter a period of freefall.
