Last year, the market was predicted to fall by anywhere from 5% to over 20%. Fortunately, those anticipating doom and gloom for the housing market were proved wrong, as average falls through 2023 tended to range between a few percent and 10% at most.
This year, things have turned around much more quickly than most predicted. Back in November, the expectation was that there could be further small falls of up to 4%, but it was fairly obvious at the start of 2024 that buyers and sellers were actually quite keen to get moving again.
And, even though average mortgage interest rates were still relatively high at 5-6%, some lenders were already beginning to bring them down, on the basis that inflation had already fallen significantly and the Bank of England was widely expected to drop the base rate around summer time.
As a result, by May the majority of forecasters had dropped any predictions of further price falls and started to forecast small rises, of around 2-4% for most regions.
Here is a summary showing JLL’s forecasts for 2024 and the actual figures reported by the Land Registry, Hometrack and Nationwide as at May/June:
It’s important to note that Land Registry data tends to lag the other indices as it tracks sold prices at the point of registry, which can be 3-6 months out of date, depending on how long the transactions took to complete.
So, the most up-to-date picture of how the market is performing is given by Hometrack, which takes account of both mortgaged and cash sales, and Nationwide, which tracks purchases with a mortgage.
While the latest HPI for England and Wales from e.surv shows prices in July were down year on year - 1.3% below July 2023 - this is actually the strongest performance in over a year and a considerable improvement on the year-on-year falls of nearly 4% seen in previous months.
“The year-on-year price comparisons have moved favourably across all parts of England and Wales, albeit that the improvements have been noticeably more limited in the West and East Midlands." - e.surv
Although most of the latest forecasts for 2024 are a bit stronger than the actuals we’ve seen to date, this shouldn’t be a surprise, as we’ve only just had the first base rate reduction in 12 months.
But now the market has ‘turned’ for the better, and the base rate is forecast to come down further by the end of the year, the market is likely to continue to pick up.
What’s happening to transactions?
Although most of the media concentrates on prices, the number of properties bought and sold is often a more useful measure of how well the housing market is performing.
Every year, on average, we sell around 1.2 million homes, although this can vary quite dramatically, depending on what’s happening in the UK economy or the rest of the world. In the first year of the COVID-19 pandemic, transactions fell to around 1m, then in the second year they rose to 1.5m, causing huge amounts of stress and strain on home moving services.
Last year, after mortgage rates rose so quickly, transactions fell back to around 1m again. Although a similar number were predicted for this year, we seem to be on track for around 1.1m sales, which is good news for home movers and a welcome uplift for the industry.
This means it might be more difficult to get a ‘bargain’ this year than last but, as always, it will depend on what’s happening in your specific area - what’s for sale and how many people are looking. So do always speak to your local Reeds Rains branch where our sales and lettings experts will be able to give you a true picture of the immediate market.
How have rents performed so far this year?
There is still significant pressure on housing in the rental sector, with demand continuing to outstrip supply in most areas, and that is resulting in rents being pushed further upwards.
In some places, prices have been rising at double-digit rates, which was unheard of before the Welsh, Scottish and English governments introduced measures to curb buy to let investment.
Despite Scotland trying to introduce rent controls, their prices have still risen by 8.2%, while the ONS shows growth of 8.6% in England and 7.9% in Wales in the 12 months to July. Although this is a slightly lower growth rate than we’ve seen over the last few years, it is still far higher than the 4-5% predicted by the industry.
How can rents still rise by this much?
The reality is that rents tend to move in line with wage growth (or falls). And, although general inflation has fallen back to its long-term average and target of 2%, average wage growth is still 4.5%. And many tenants trying to secure a property to live in will be putting their extra earnings into rent, competing prices upwards.
Overall, the forecasters have been pretty accurate for this year. On transactions, which are the easiest to predict, they have been spot on, while prices have risen slightly better than anticipated.
Rents remain higher than everyone thought they would be, but this is primarily due to wage growth also being higher than expected.
For the rest of 2024, it’s likely that prices will rise by a few percent or more, rents will continue to grow by 5% or more and transactions will reach around 1.1million.
What does this mean for Buy to Let investors?
If you are new to the market, it will be a little tougher to find a good deal at below true market value, so you will have to look a lot harder than over the last 18 months. However, on the plus side, you are likely to benefit from lower mortgage rates and higher rental income.
For those already in the market, the news is good, as your property is likely to recover some if not all of the value you may have lost in 2023, and rental income will continue to grow – probably by more than inflation, which should help meet any higher mortgage payments you may have make.
If you would like any help finding a new investment or you have any questions about the local market you can find the details for your local branch here.
If you are currently letting out your property or considering letting out a new property and want to find out how much rent you could charge, try our instant online lettings valuation tool.
Get an instant online lettings valuation
Alternatively, book a free face to face lettings consultation.
