House prices fall nearly 2% over year

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House prices fell 1.8 per cent over the course of 2023, and are unlikely to rebound next year according to Nationwide.

The decline since last December leaves the average price almost 4.5 per cent below the all-time high recorded in late summer 2022. Nationwide predicts that they will likely remain flat or record a fall of up to 2 per cent in the year ahead.

Robert Gardner, the building society’s chief economist, said: “Housing market activity was weak throughout 2023. The total number of transactions has been running at around 10 per cent below pre-pandemic levels over the past six months, with those involving a mortgage down even more (around 20 per cent), reflecting the impact of higher borrowing costs. On the flip side, the volume of cash transactions has continued to run above pre-Covid levels.

“Even though house prices are modestly lower and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates, which in recent months were still more than three times the record lows prevailing in 2021 in the wake of the pandemic.”

Gardner said high mortgage rates were stretching affordability while, at the same time, “deposit requirements remain prohibitively high for many of those wanting to buy”.

He added: “If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline or remain broadly flat (perhaps 0 to -2 per cent) over the course of 2024.”

Gardner expects affordability to improve over time thanks to income growth and lower mortgage rates. Yet activity is expected to remain “fairly subdued in the interim”.

Prices in December were broadly flat compared with November, with the average UK home now costing £257,443. Northern Ireland and Scotland have been the only parts of the UK to see prices rise in 2023. East Anglia was the weakest performing region with prices down 5.2 per cent over the year.

Across England overall, prices were down 2.9 per cent compared with the final quarter of 2022, while in Wales there was a 1.9 per cent decline.

Across northern England, which comprises North, North West, Yorkshire & The Humber, East Midlands and West Midlands, prices were down 1.8 per cent year on year. Yorkshire & The Humber was the best performing northern region with an annual rate of change of -0.5 per cent.

Southern England — the South West, Outer South East, Outer Metropolitan, London and East Anglia — saw a 3.4 per cent year-on-year fall. London was once again the best performing southern region, registering a smaller annual decline of 2.4 per cent.

Throughout this year there were signs that more buyers were looking towards smaller, less expensive properties, with transaction volumes for flats holding up better than other property types. This may be because affordability for flats has held up relatively better as they experienced less of a price increase over the pandemic period, Nationwide said.

“However, in our most recent data, we have seen a convergence in the annual rate of price growth for different property types,” Gardner said. “During 2023, the price of semi-detached properties held up best, recording a 1.8 per cent year-on-year fall. Meanwhile, flats and terraced houses both saw a 2.1 per cent annual decline, while detached properties were the weakest performing with prices down 2.7 per cent over the year.”