The latest report from Nationwide has revealed house prices have fallen 5.3% year on year which is the largest annual decline since 2009. The annual decline for an average home amounts to £146,000. The monthly decline amounted to 0.8%. The average house price according to Nationwide’s House Price Index is £259,153, which is less than the July average of £260,828 and much less than the average last August of £273,751. There are many concerns about this being yet another sign the housing market could be on a long downward trend.

The number of completed transactions in the first half of 2023 were down 20% of pre-pandemic levels and 40% down from completions in the first half of 2021. 

Yet, the housing market could prove resilient despite higher interest rates, or the next year could follow much like this one in terms of the trends present now in the economy.

House prices have remained high in terms of years past and it has shut out many first-time buyers, and home movers, as well. When interest rates were at historic lows during the height of the pandemic, higher asking prices were not a deterrent due to cheap borrowing. When both house prices and interest rates are high, it closes out many buyers. There are also buyers that could afford the market but are put off by the extra expense and choose to step back rather than take the plunge.

The change in the market is impacting home sellers. When borrowing was cheaper due to historically low interest rate offers from many lenders, sellers could find buyers quickly and at prices not expected due to the strong demand in the market. The profit from some sales was equal to what would have taken many years for a property’s value to demand and instead it happened quickly.

Sellers of properties that were not often hot on the market, such as country homes and cottages became the prized find by home buyers anxious to escape their work lifestyles and adapt to their pandemic lifestyle with less stress, less city hustle, and more room for their family and pets both inside and outside the home. 

Now people are returning to the office and leaving behind work from home due to employers calling them back onto location. This has caused the demand for out of the way places to decline. In those areas, the property values could see a greater decline than in properties near the city or in a large area with strong employment opportunities.

Where demand remains or grows, the house prices will continue to stay high, decline only a small amount, or they could possibly grow. Where there are fewer buyers interested in properties and the demand declines, house prices will drop and property values could, too.

While there is a concern for homeowners with little built equity experiencing property value declines and shifting into negative equity, there is always the chance that lower prices could draw in the attention of home buyers and property values would be able to remain steady.

The housing market has remained resilient throughout Brexit and during the global pandemic when anyone could have expected a deep decline in demand. Instead, the UK housing market flourished, and broke records as house prices soared upward to new highs month after month.

There is also the consideration that some experts believe the housing market is not in decline, but simply a natural correction following the boost in the market due to the pandemic impacted historically low interest rates.

The worry comes from the fact that inflation will require further action from the Bank of England’s Monetary Policy Committee (MPC) to bring it closer to the target rate of 2.0%. It currently is slightly over 6%, and therefore is three times above target. Experts believe that the MPC will have to increase the standard base interest rate during each of the final three of 2023. 

The last two MPC meetings, in June and August, resulted in a 0.50% and 0.25% increase in the base rate. The next meeting this month on the 21st is forecasted to end with another 0.25% increase taking the rate to 5.50%.

The further expected interest rate hikes could push more buyers away from the market, including first time buyers, home movers, and landlords. The UK Housing market is important to the overall economy, so as demand drops, though interest rates may remain on an upward path, perhaps there will be incentives offered to bring buyers back such as occurred with stamp duty discounts and buying schemes of the past.

The housing market is certainly something to watch and consider in the days and months ahead whether one is a buyer, seller, homeowner, landlord, or one is simply looking for signs as to how the UK economy is fairing.