House prices rose in April following seven months of consecutive falls, showing the property market may be stabilising after a tough start to the year.
Nationwide’s latest house price index showed that while annual house price growth remained negative at -2.7%, prices rose 0.5% during the month, breaking a seven month-long negative streak. That means the average price of a house in April 2023 was £260,441, up from £257,122 the month before.
This is a “tentative sign of recovery”, says Robert Gardner, Nationwide’s chief economist.
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Additionally even though it remains “subdued by historic standards” consumer confidence has begun to recover and if inflation falls as predicted, sentiment would rise further “especially if labour market conditions remain strong”, says Gardner.
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This could support a recovery in housing market activity following months of falls. Still, the market “remains incredibly difficult to predict”, says Karen Noye, mortgage expert at Quilter.
Data from Zoopla, also out today, showed annual house price growth slowed to 3% in April, but the worst of the price falls appear to be over.
Is the housing market starting to recover?
The property market’s boom started coming to an end towards the end of 2022, when interest rates started to rise following the mini-Budget chaos, which then sent mortgage rates up over 6.6% – three times what they were at the start of last year.
Since then house price indexes have reported the slowdown. The ONS said house prices dropped 0.3% in February, while the Royal Institution of Chartered Surveyors said the market would continue to slow down over the next 12 months.
Additionally the latest data from HMRC showed residential transactions fell 19% year-on-year in March 2023, while data from the Bank of England showed 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,” continues Gardner.
Indeed, mortgage product availability is at its highest level in a year, according to MoneyFacts.
Interest rates are currently sitting at 4.25% and they’re predicted to go up again when the BoE next meets this month, which could push mortgage rates higher again. But so far, “homeowners appear to be coping with these heightened costs, preventing a huge slide in house prices”, says Noye.
That said, any upturn in prices 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,” added Gardner.
Zoopla: first time buyers fuel the housing market
Zoopla’s house price index showed demand for homes remains high. The stock of homes for sale this year is 66% higher than this time last year, while buyer demand has hit its highest level so far in 2023.
While buyer demand is 42% lower than it was this time last year, this is because the figures last year were distorted by unusually high demand due to a chronic shortfall of homes on the market.
Rental costs are up 11% over the last year, which is pushing more first time buyers into the market. But this group now needs an extra £7,350 on their gross household income to buy a three bed house.
“Housing market conditions continue to improve as buyers return to the market and more sales are agreed,” said Richard Donnell, executive director at Zoopla.
“House prices are posting very modest falls and are expected to be just 1% lower by the end of the year. The worst of the pricing adjustment appears to be behind us.
“We expect first time buyers to have another strong year in 2023 having been the largest buyer group last year. They need more income to buy but are starting to look for smaller homes and get away from rapid growth in rents. “
