It is safe to say that the outlook of 2023 looks as turbulent as previous years with further strikes, the cost of living crisis, the war in Ukraine rumbling on, increased interest rates and many other aspects but let’s be honest has there been a sense of normality since the Brexit referendum in June 2016?
The property market has many moving parts; generally, when people look at the property market the focus is on house prices and for a good reason too, ever-increasing house prices create confidence… with confidence, people are willing to sell and make their next move.
That said, prices cannot continually increase and create confidence without wages increasing to cover the cost of moving and mortgage payments, with ever-increasing wages, the cost of everything has to increase to cover the cost.
Additionally, we all know that nobody wants to buy at the top of the market. The housing market is a very complex web which means making predictions can be a challenge but here is my overview/opinion.
The Property Market in 2023
A wise man once told me that money doesn’t disappear, it merely moves around and I often think about this when trying to understand what will happen over the next year and how finances will ultimately affect the property market, the business and my role.
I personally feel there are two contributing factors affecting demand; house prices and transaction numbers. First, the associated costs of both life and moving generally and secondly the boom which has happened post covid…has this bubble now burst?
To put the boom into perspective, transaction numbers increased by over 10% from April 2021 to March 2022 compared to any year prior since 2015. Does this in itself lend itself to a lull in transaction numbers? It’s worth noting that before 2008, people moved an average of 4.6 times in their life with this number now estimated to be approximately 2.8 times with people moving once every 23 years. Add these two factors together and you can’t think there won’t be a reduction in demand, although these two points are simply offset by population numbers which are at an all-time high.
The Cost of Living Crisis
The associated cost of living and moving is complicated but I have summarised it as follows:
- House prices: The average house price in October 2019 was £232,000 compared to £316,000 in October 2022 – an increase of 36%
- Interest rates: In 2019 the average interest rate for a five-year fixed mortgage was 2.64% compared to 4.59% in January 2023 an increase of just under 2%. To put this into perspective, if you had purchased the average house in January 2023 instead of October 2019 you would be paying an additional £321 per month in mortgage repayments.
- The Cost of Living Crisis: Inflation is at 10%, the cost of food is up by approximately 12%, the cost of utilities is increasing by more than double and other costs including fuel and child care costs ever-increasing all place a squeeze on people’s purses.
The financial pressure does not just affect the funds people have to buy upmarket, they also squeeze the bank of Mum and Dad which assists 1 in 3 first-time buyers. All of this has a negative impact on available funds and therefore demand and potential transaction numbers.
All this looks very gloomy looking forward to 2023 but what could increase transaction numbers?
Firstly escalating rent costs could drive people to purchase a property, whilst this may not be the property they want but they could take a “step back” to get on the property ladder. Some argue that recently people have had it too good and that years ago people were not buying a three-bed semi or detached house as first-time buyers like that have recently.
Secondly, all the above costs could lead to an increase in repossessions and transaction numbers and thirdly people want to downsize to reduce their costs but this can only happen if you have a buyer willing to purchase. The increase in utility bills also lends itself to people wanting to purchase a more energy-efficient home, obviously, you need someone to buy the property that the person is selling but it creates another transaction.
Other contributing factors to take into account include more localised influences for example, here in Suffolk we were subject to a large increase in people rushing out of London to escape the city during the pandemic to have more space and a more rural way of living, this was also driven with the increase in people working from home but this boom may have stopped. It’s clear from everyday life that people are returning to “normality” and a pre-pandemic life. There are also many other factors that need to be taken into account before any prediction can be made about the housing market in 2023 and if I had the ability to predict the future I would be a very rich man but for what it is worth this is my opinion…
I think there will inevitably be a reduction in demand from the levels we have all seen in 2021 and 2022, despite the ongoing stamp duty relief saving people up to £2,500, house prices will decrease due to a decrease in demand and the pure mathematics of people’s finances. It would not surprise me if transaction numbers reduce by 20% on 2021/2022 levels but it is worth remembering these numbers were overinflated due to covid and the stamp duty holiday during this period.
With an ever-reducing amount of active conveyancers doing the job, this may be seen as a welcome relief for the remaining few, it was reported over 3,500 conveyancers left the profession after the stamp duty holiday during the pandemic. For the consumer a reduction in transaction numbers is not all bad news – firstly it could lead to a reduction in house prices but beyond this, it will hopefully result in the quality of conveyancing work improving. With slightly more time available comes the ability to better train junior staff and re-skill the profession which is essential. All of this could mean that transaction timescales are reduced which are currently at an all-time high. If both transaction numbers and timescales decrease by 20%, the industry’s cash flow won’t be negatively affected as the media may suggest.
I think it is safe to say that 2023 will be as turbulent a year as the last 7 and all we can do is look to adjust, look forward and keep calm and carry on.