As in much of the world, home prices soared during the COVID pandemic as buyers sought additional living space and took advantage of low interest rates, but with high inflation proving sticky the Bank of England embarked on an aggressive rate hiking path and is likely not done yet.
Average house prices were expected to fall a modest 3.0% across 2023, deeper than the 2.4% drop predicted in a February poll but nowhere near the crash some were expecting, the May 16-31 poll of 23 market specialists showed. The lowest forecast was for a 10.0% fall.
They are then expected to flatline in 2024 and rise 3.1% the year after. In the last poll they were expected to rise 1.0% next year and 3.5% in 2025.
"The majority of pundits and doomsters are being proved wrong - it is not an edge of the cliff moment. Yes, prices will fall this year but by single digits," said Tony Williams at consultancy Building Value.
From peak to trough home prices will fall 7.5%, the median in the poll showed. Forecasts ranged from a 4.3% dip to a drop of 17.5%.
"Persistent core inflation and wage pressures will prevent the Bank of England from cutting interest rates until 2024, which means mortgage rates won't fall any further until next year," said Andrew Wishart at Capital Economics.
"The resulting high cost of mortgage borrowing will prevent a recovery in demand, lending, and sales until interest rates are cut."
Since December 2021 the BoE has made 12 consecutive increases to Bank Rate, adding 4.4 percentage points in the sharpest increase in rates since 1989.
Currently at 4.50%, a separate Reuters poll suggested it would peak at 5.00% next quarter. Markets are pricing in a peak of around 5.25%-5.50%.
Those rising borrowing costs - already at a level not seen in almost 15 years - meant house prices fell on average 3.4% in the 12 months to May, the most since 2009, lender Nationwide said this week.
Meanwhile, lenders approved fewer loans for house purchases in April than in March and the value of new mortgage lending also dropped, according to BoE data that added to signs of a slowdown in the housing market.
When asked what was more likely for home prices this year, two-thirds of respondents to an extra question, eight of 12, said a downturn. The other four said an upturn.
"A significant downturn is unlikely, but a downturn is more likely than a recovery in values," said Michael McGill at real estate firm CBRE.
Britain's largest housebuilder Barratt Developments said earlier this month the "economic backdrop remains difficult" but did report improving buyer interest.
Prices for homes in the capital, long a magnet for foreign investors but which were hit by Brexit and COVID, will fall 3.3% this year before rising 0.2% in 2024 and 4.0% the following year, the poll found.
"The capital's housing market has been more affected by political, economic and pandemic turmoil than the regions and has seen a reduction in values over recent years," said property consultant Russell Quirk.
"However, London will always be London as far as property investment sentiment is concerned over the medium to long term, and so we can expect to see the market here spring back to life."
(For other stories from the Reuters quarterly housing market polls:)
(Reporting by Jonathan Cable; polling by Mumal Rathore and Anitta Sunil; Editing by Kim Coghill)
By Jonathan Cable
