House prices show resilience amid easing pessimism

By Fifty21 Media

17 May 2023

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The UK housing market is experiencing a gradual decline in the pace of falling house prices as sales pessimism eases, according to a survey conducted among estate agents. The findings suggest that the property market is showing signs of stabilisation following the recent spike in mortgage costs.

The Royal Institution of Chartered Surveyors (RICS) reported on Thursday that its house price balance, which measures the difference between the percentage of surveyors witnessing price increases and decreases, increased to minus 39 last month from the previous figure of minus 43 in March.

Moreover, respondents to RICS's poll expressed a more optimistic outlook for future house prices. Expectations for the coming year rose to minus 16 in April, up from the figure of minus 24 in March. This marks a significant improvement compared to the low of minus 61 reported in November of the previous year.

These improved figures come on the heels of official data released on Wednesday, which indicated that a growing number of young adults in England and Wales, particularly in London, are choosing to remain living with their parents due to the challenges of affordable housing.

While acknowledging the slight improvement in most indicators since the end of last year, RICS highlighted that the housing market still faces obstacles in gaining momentum. Higher borrowing costs and a cautious economic outlook continue to pose challenges.

Agreed sales for April saw a positive shift, reaching minus 19, the highest level since July of the previous year. However, the measure tracking new buyer demand declined to minus 37 from minus 30 in March and February.

This latest data aligns with figures released by Nationwide, a mortgage provider, which revealed a 0.5% increase in house prices between March and April. The Bank of England also reported that mortgage approvals reached a five-month high in March.

Borrowing costs have eased since reaching a peak in the autumn of last year, following the announcement of £45 billion in unfunded tax cuts by then Prime Minister Liz Truss in her ill-fated "mini" Budget. However, current borrowing costs remain higher compared to pre-September 2022 levels.

It is expected that mortgages tied to the Bank of England's base rate will further increase as markets anticipate a rise in interest rates to a 15-year high of 4.5%. Nonetheless, consumers on fixed-rate deals are benefiting from the expectation of lower long-term interest rates.

As a result of many people being unable to afford property purchases, RICS surveyors have observed a surge in rental demand, driving rental prices significantly above average levels seen over the past two decades.

Housing Affordability Issues Drive Young Families Away from London

Data released by the Office for National Statistics (ONS) on Wednesday highlights the persistent issue of housing affordability, leading to a growing number of young adults choosing to live with their parents, particularly in London.

In 2021, London had the highest proportion of families with at least one adult child—defined as someone aged over 18 or over 16 and not in education—living at home. The ONS reported that housing affordability was a major contributing factor to this trend. London was the least affordable region for property purchases last year, with the average worker spending 12.5 times their annual earnings to buy a home.

The challenging housing market in London has created a parasitical effect, deterring young families from establishing their own households. The lack of affordability makes it increasingly difficult for young adults to step onto the property ladder, leading them to seek more financially viable living arrangements with their parents.

In conclusion, the UK housing market is exhibiting signs of resilience as the pace of falling house prices slows down. Despite the improved figures, challenges persist, including higher borrowing costs and a cautious economic outlook. Meanwhile, housing affordability issues, particularly in London, are driving young adults to continue living with their parents. These factors contribute to the complex dynamics of the UK property market, shaping the landscape for both buyers and renters alike.

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