The UK’s current house price inflation has slowed to 7.8%, the slowest rate of growth recorded since November last year, Zoopla’s latest house price index reveals.
The data shows that more recent trends over the last quarter growth rates are running at less than a third of the last year.
However, Zoopla is yet to record price falls over the last three months across UK countries, regions or major UK cities.
It says it expects price growth to dip into negative territory in the first half of 2023 as the market adjusts to weaker buying power and concerns over the economic outlook.
Zoopla says the housing market is transitioning from “an unsustainably strong market to one more balanced, albeit with affordability challenges for homebuyers most reliant on mortgage finance and a weaker economic outlook for 2023”.
The latest data found that buyer demand is down 44% year-on-year with a slower decline seen in sales at -28%, which are now back to pre-pandemic levels.
Meanwhile, property sales are still being agreed by those who still have low-rate mortgage offers and among certain buyers including would-be first-time buyers (FTBs) facing steep rent rises or buyers less reliant on mortgages.
New sales have fallen by up to 50% in the previous market hotspots and high-value areas where higher mortgage rates will hit buying power hardest such as the mid to upper price bands in Southern England (excluding London), East Midlands and Wales.
Sales have fallen less in more affordable areas and London where market conditions have been weaker.
More homes are coming to the market for sale with the total stock of homes available up 40% compared to 2021.
However, almost 20% below pre-pandemic levels and rising supply will boost choice for consumers.
Elsewhere, sellers are now having to accept discounts to asking prices in order to achieve a sale.
The average price achieved in recent weeks has been 3% below the asking price while for much of 2021 and the first half of 2022 it has been 0%.
Zoopla says it expects discounts to widen further in 2023 with history showing that when discounts reach 5% to 6% this points to flat to falling prices.
The latest data shows falling demand and sales mean new and current sellers are being forced to set asking prices at more realistic levels to help secure buyer interest.
One in 10 homes have recorded a price reduction of 5%+ and one in four has experienced a price reduction of any size since 1 September 2022.
Asking price reductions are greatest in Southern England, where sales volumes have fallen the most with almost one in three homes in the South East and East of England reducing asking prices to attract more demand.
In terms of mortgage rates, the underlying cost of five-year fixed-rate mortgages has fallen back over the last month and signals mortgage rates closer to 5% as we start 2023.
While this is a better position than rates of 6.25% previously seen, Zoopla says it still represents hundreds of pounds a month in average buying costs for the seven in 10 households reliant on mortgages.
Looking ahead, Zoopla says it expects sales volumes to drop back to one million over 2023 from 1.3m in 2022 with house price falls of up to 5%, concentrated in the high-value markets most sensitive to higher borrowing costs.
Zoopla executive director Richard Donnell says: “The housing market is adjusting to a reset in the level of mortgage rates but the likelihood of double-digit house price falls at a UK level remains low.”
“While the outlook for house prices is weak, we see a shift to more needs-driven motivations to move in 2023 and beyond which will support sales volumes. Ongoing pandemic impacts, increased labour market flexibility plus more retirement will continue to encourage moves.”
“Cost of living pressures will compound these trends encouraging homeowners to consider their next move. The rapid growth in rents, which shows little signs of slowing, will add to cost-of-living pressures and add continued impetus to FTBs demand.”
Hargreaves Lansdown senior personal finance analyst Sarah Coles comments: “Hikes in mortgage rates mean runaway house prices have given way to runaway buyers. Demand has plummeted by almost half since the mini-budget, and one in four sellers are being forced to cut their prices. And this is just the beginning.”
“On the face of it, house price growth is still 7.8% over the past year, which seems relatively healthy, and Zoopla says it’s not seeing price falls in any area. However, over the past three months, prices are up less than 1%, and all the signs point to a market that’s starting to struggle.”
“Demand has collapsed since the mini-budget unleashed chaos on the mortgage market. Meanwhile, sales are down – in some areas as much as 50%. Even once a sale is agreed, the proportion of sales that fall apart during the buying process is rising – and has hit 15%.”
“One in four sellers have had to cut their asking price, and increasingly they’re having to accept an offer. For most of the past two years, sellers have on average achieved their asking prices.”
“However, in recent months, a gap has opened up, so they’re having to accept offers 3% below the asking price. Zoopla estimates that when this discount hits 5-7%, prices will be falling – and that can’t be far off now.”
“There’s not an awful lot to be cheerful about in the property market at the moment, but there is one bright spot. Mortgage rates are coming down, and according to Moneyfacts, five-year fixed rates have dipped below 6%. As times get tougher, and the threat of more rate rises starts to fade, we may well see these rates come down further.”
“It’s highly unlikely to be enough to turn the market around and see buyers return once we’re deeper into the recession. However, more manageable rates may well mean that the market correction isn’t as dire as some analysts had predicted. Zoopla is putting its money on a 5% drop, reflecting a number of analysts forecasting single-digit falls by the end of next year.”