Yahoo Finance How far house prices will fall, according to the experts
House prices are widely expected to fall this year, as soaring mortgage rates substantially cut how much buyers can borrow.
But there is a wide gulf between the predictions that various property experts have issued. They range from falls of 12pc, forecast by analysts Capital Economics and Oxford Economics, to modest slumps of 1pc to 2pc, being predicted by estate agents Chestertons and Jackson-Stops. Hamptons has predicted prices will be flat.
So which forecasts should be trusted this year? The Telegraph examined the expert predictions for 2022 – and whether they came true.
What happened last year?
Mortgage lender Nationwide said house prices rose by 2.8pc in the year to December. Prices peaked in August and dropped for four months in a row, which was the property market’s worst run since 2008, it said.
Rival lender Halifax said prices rose by 2pc last year; the numbers differ slightly because they are based on each lender’s sales rather than the entire market. Based on the average of the two indices, the annual rise for 2022 was 2.4pc.
Official data from the Office for National Statistics, which takes in the entire market rather than mortgaged buyers, is not yet available for 2022 because of a lag in publishing data.
Which forecasters came closest?
The closest predictions for last year came from Pantheon Macroeconomics, an analysis firm, which at the beginning of 2022 forecast that prices would rise by 2.5pc.
This year, Pantheon has said house prices will plummet by 8pc. This prediction is shared by the Centre for Economics and Business Research and Halifax.
Pantheon said that while some analysts say mortgage rate drops will “gather pace” in the coming months, banks are seeking to boost their profit margins, meaning rates could stay high. This is because of a riskier economic environment and impending rises in unemployment.
The average new buyer will need to be able to spend 32pc of their monthly disposable income on mortgage repayments, up from 22pc at the start of last year.
Many buyers will fail lenders’ affordability tests, which will become tougher because they are linked to their standard variable rates. Affordability tests are based on whether a buyer can afford mortgage repayments if their mortgage rate exceeds the standard variable rate by two percentage points, Pantheon said. Mortgage rates are expected to edge down in 2024 when the bank rate drops.
The forecasts that overshot price movements
The 2022 forecasts that ended up being furthest from reality came from Strutt & Parker estate agents, Rightmove, the property website, and Capital Economics. Strutt & Parker had expected a rise of 7pc, while Capital Economics and Rightmove both said the increase would be 5pc.
Strutt & Parker said the lower end of its forecast last year – 2pc – was in line with Halifax's figure of 2pc.
Rightmove said its 5pc forecast was for average asking prices on its website, a measure of sentiment rather than actual sale prices, which rose by 5.6pc in the year to December.
Capital Economics said its 5pc year-on-year forecast for last year was for the fourth quarter of 2022 and is in line with Nationwide's figure for the same period, which was 4.8pc.
Why do forecasts vary so significantly?
Andrew Goodwin, chief UK economist at Oxford Economics, said the wide variation in forecasts for 2023 reflects uncertainty around how large and sudden increases in mortgage rates will affect the housing market.
He said: “In previous cycles, large rises in interest rates have quickly fed through to house prices because not only did we see a slump in demand, but supply also rose because more people were forced to sell.
“This time around things look different because fixed rate mortgages are far more prevalent than they were in previous cycles, so fewer mortgagors face a sudden increase in debt servicing costs.
“With unemployment also likely to peak at a relatively low rate, we think that the number of forced sales will be much lower, which will limit the extent to which prices fall.”
