New analysis has suggested conveyancers should prepare for residential property transactions to fall by a striking 28% from pre-pandemic levels during 2023.
Savills’ transaction volume forecast for 2023-2027, which is based on economic forecasts from Oxford Economics, suggested transactions will bottom out at 870,000 next year – a marked decrease from the 1.2 million seen per year pre-pandemic.
While this is still some 18% higher than the lowest levels seen following the Global Financial Crisis, there are signs that the current plight affecting the market is here to stay, with the agency predicting that transactions will not recover to their pre-pandemic levels by 2027, instead peaking at 1.1 million.
As to exactly what that plight may look like, Savills cited high mortgage rates, limited high-LTV products, the loss of Help to Buy, the cost of living, rent prices affecting ability to save for deposits, high house prices, and a reduced incentive to sell/move amidst a challenging market as the reasons for their forecast.
That said, they also suggested factors such as stamp duty cuts and a fall in home values are two incentives which will help the market to stay afloat and recover over the next five years.
With regards to the prices of residential property over the same period, Savills predict a 10% fall in house prices during 2023. A similar though more tame prediction is made by Zoopla, who last week predicted a 5% fall in prices next year.
According to Savills, however, this will quickly be remediated given the predicted five-year average growth of 6.2%, peaking at 7% in 2026.
The key drivers of price falls in 2023 are summarised in the below graphic from Savills:
While house price falls are predicted for 2023, the latest house price index from Nationwide perhaps indicates that the drop is already underway having notched a 0.9% drop in October.
2024 and beyond
As to the basis of Savills’ view that prices and transactions will eventually recover, the agency said mortgage rates are “critical”. They accordingly predict that mortgage affordability will “markedly improve” on the basis that mortgage markets settle down and the bank rate reduces by mid-2024, all of which will lead to “a return to modest house price growth from 2024 onwards, with a more pronounced rebound in 2026”.
To read Savills’ full analysis of 2022 and mainstream residential market forecast for 2023-2027, click here.
