Where will house prices go in 2023?

House prices experienced rapid growth throughout the pandemic thanks to a combination of stamp duty cuts, low-interest rates and the “race for space.”

However, the combination of rising interest rates and the cost of living crisis started hitting buyer confidence last year. 

But in recent weeks, data from house price indexes on the state of the property market has indicated a positive shift.

Buyer confidence appears to have been buoyed by improving mortgage rates with the latest ONS house prices indexing showing property prices fell for four consecutive months: decreasing 1.2% in March 2023, following a fall of 0.1% in February 2023. It means that the average value of a UK property now stands at £285,000.

This contrasts with Rightmove’s house price index for May that found property prices rose to record highs in the month. 

The average price of property coming to the market jumped by 1.8% or £6,647 to reach a new record of £372,894.

The monthly increase is the biggest of the year so far, Rightmove says, and the market as a whole is nearing pre-pandemic sales figures. Agreed sales numbers are currently just 3% behind the last more normal pre-pandemic market of 2019.

Tim Bannister, Rightmove’s director of property science says, “One reason for this increased confidence may be that the gloomy start-of-the-year predictions for the market are looking increasingly unlikely.”

“What is much more likely is that the market will continue to transition to a more normal activity level this year following the exceptional activity of the pandemic years,” he adds.

Other housing indices echo Rightmove’s findings. Nationwide’s latest house price index showed prices rose 0.5% during the month of April, breaking a seven month-long negative streak, a “tentative sign of recovery,” said Robert Gardner, Nationwide’s chief economist. 

The index said the average price tag on a home was currently £260,441. 

Meanwhile, Zoopla’s house price index showed house price growth had slowed to 3% in April with both demand and supply recovering. 

In contrast, the latest data from HMRC showed the number of seasonally adjusted UK residential transactions fell 19% year-on-year in March 2023.

Earlier in the year, in order to push through transactions, some sellers were taking discounts of up to £14,000 as they re-priced their homes to ensure they secured a sale amid the cooling market.

While “the annual picture still indicates a significant drop-off compared to this time last year… don’t forget the turbulent scenes back then fuelled by the frenzied competition for housing and a shortage of properties”, says Iain McKenzie, CEO of The Guild of Property Professionals. 

“Any hopes of seeing higher sales and more people owning their own home rely on a higher volume of building and making sure these properties are affordable,” continued McKenzie.

“At the moment, affordability is the number one barrier to home ownership in 2023. With inflation still high and house prices inflated above pre-pandemic levels, prospective buyers may be delaying their property buying journey and holding on to their deposits until living costs are under control.”

So what does this all mean for house prices?

First-time buyers lead the recovery 

Rightmove found it’s the first-time buyer sector leading the recovery to pre-pandemic sales. Agreed sales for properties with two-bedrooms and fewer are 4% higher than March 2012.

First-time buyer type properties reached a new record price of £224,963 this month and buyer demand is 11% higher than it was in this period in 2019. 

Data from Zoopla supports this. Its latest index showed rental costs are up 11% over the last year, which is pushing more first time buyers into the market. 

“We expect first time buyers to have another strong year in 2023 having been the largest buyer group last year,” Said Richard Donnell, executive director at Zoopla. “They need more income to buy but are starting to look for smaller homes and get away from rapid growth in rents.”

Indeed, data from Zoopla showed first time buyers now need an extra £7,350 on their gross household income to buy a three bed house. 

But first-time buyers could take comfort in knowing mortgage rates have been falling as lenders compete for business – though this might be affected by the latest inflation figures, which could push the BoE towards another rate hike. 

Where will house prices go in 2023?

The Office for Budget Responsibility (OBR) published a fresh forecast for the property market alongside the Spring Budget – saying it estimated prices would fall further than previously expected. The OBR now expects house prices to fall 10% by 2024. 

Lloyds and Halifax expect house prices to fall 8% in 2023, while Nationwide and online estate agent Zoopla are predicting falls of 5%. 

But while the consensus is prices will fall this year, “it's a more nuanced picture”, says Myron Jobson, senior personal finance analyst at interactive investor. 

“Property values may indeed fall in very stretched areas, and for other areas, prices may not change very much - if at all.”

Indeed, Nationwide’s figures show the market could be starting to stabilise. 

“Recent Bank of England data suggests housing market activity remained subdued in the opening months of 2023, with the number of mortgages approved for house purchase in February nearly 40% below the level prevailing a year ago, and around a third lower than pre-pandemic levels,” says Gardner. “However, in recent months industry data on mortgage applications point to signs of a pickup.

“This, in turn, would also be likely to support a modest recovery in housing market activity. But any upturn is likely to remain fairly pedestrian, as it will take time for household finances to recover, since average earnings have been failing to keep pace with inflation, and by a wide margin over the last few years. Mortgage interest rates are also likely to act as a headwind. While they are well below the highs seen in the wake of the mini-Budget last year, rates are still more than double the level prevailing a year ago.”

“Predicting exactly where house prices go next is more difficult. While the increased cost of living continues to put significant pressure on personal finances, the likely drop in energy prices – and inflation more generally – in the coming months should offer a little more headroom in household budgets,” says Kim Kinnaird, director at Halifax Mortgages. 

“While the path for interest rates is uncertain, mortgage costs are unlikely to get significantly cheaper in the short-term and the performance of the housing market will continue to reflect these new norms of higher borrowing costs and lower demand. Therefore, we still expect to see a continued slowdown through this year.”

With additional contributions by Katie Binns and Tom Higgins.