A Closer Look at February’s House Price Report | Zoopla
There is no doubt that the property market struggled to come to terms with the different factors that impacted sales from October to December. As we entered 2023, it is fair to say that there were concerns, with some market commentators forecasting a 10% fall in house prices and a 50% drop in sales volumes.
A glass half full
However, the bleak predictions of a 10% fall in house prices and a 50% drop in sales volumes have not come to fruition. The numbers have been far more positive.
Many have reported sales rates ranging between 0.5 to 0.65 per week in January. Zoopla’s data supports the positive outlook across its January metrics, with the key indicator being demand. Demand for homes has bounced back in the first few weeks of 2023 compared to Q4 of 2022, although it still remains significantly below the levels of January 2018-2022 (-23%).
Luckily for investors, current buyer interest is now back in line with the pre-pandemic years and 10% ahead of those in 2019. Due to the pandemic, in the last 3 years, people’s thoughts on property and housing have completely changed. Many moved to escape the packed city centres, driving more sales in 2021 and 2022. But despite experiencing higher mortgage rates and living costs, the impact has brought activity levels back to a more ‘normal’ market.
In terms of each region, demand and sales agreed are holding up and performing well in the North East, Scotland and Wales, where property values are below the national average. Market conditions remain weaker in the South East, South West and the East Midlands, where prices are higher or have grown rapidly over the last 2 years, exacerbating affordability pressures. This is why investing in the Northern cities is such an attractive prospect for investors.
For a full breakdown of the latest Zoopla report, and what it means for you as an investor, check out Chris’s brand-new video here
Following the Mini-Budget announcement and the shock to interest rates, mortgage rates seem to have stabilised and are now generally below 5% and look set to remain in the 4% to 5% range in 2023. This is much better than the 6% to 6.5% levels at the end of last year. As the outlook becomes clearer throughout Q2, demand is set to pick up further.
The property pool is growing
The other notable change in recent months has been continued growth in the number of properties for sale. In 2022, supply was scarce adding to the pressure on property value. This is now reversing, with the number of properties for sale now just 6% below the 5-year average. There is now an average of 23 properties for sale per estate agent, up from a low of just 14 properties in early 2022. More housing supply boosts choice for buyers and will also reduce the pressure on property prices.
Affordability is shifting preferences
One clear trend from the first few weeks of 2023 is that buyers are becoming more value-conscious in response to higher mortgage rates affecting buying power. Zoopla has reported a clear shift in demand towards flats with a decline in buyers looking for 3-bed houses.
Zoopla’s data reveals that 27% of new buyers are looking for 1- and 2-bed flats, up from 22% a year ago. In contrast, demand for 3-bed houses has fallen 5 percentage points to 39%. This is a trend we are seeing across all areas of the UK in the first few weeks of the year. In London, 1- and 2-bed flats account for 49% of demand, up from 42% a year ago.
This is all part of the shift back towards better value-for-money homes in city-accessible and more affordable suburbs. The differential in pricing between flats and houses is large in many areas, supporting this shift in demand as buyers look for better value for money. Outside London, the average 2-bed flat is listed for sale on Zoopla at £196,000, which is almost £100,000 cheaper than an average 3-bed home (£293,000). 1-bed flats are £150,000 cheaper.
Some of the biggest increases in demand for flats have been seen in towns adjacent to London such as Slough, Watford, Chelmsford, Guildford and Dartford where the relative price differential is attractive for those who work locally or in London and are able to work more flexibly. The same is true in other regional cities but to a lesser degree such as Huddersfield, Stockport and Wakefield.
Whilst it is still quite early to see how the property market will fare in 2023, Zoopla’s most recent report has shown that there is cause for optimism for investors. The cost of living crisis is likely to drive a certain amount of movement in the market in 2023 as people look to downsize and move closer to the city centres. In the short term, Zooplas data suggests further, low single-digit price falls in Q1 2023 but the housing market is in better shape to deal with changes than in previous economic cycles.
If you would like to know more about the latest data provided by Zoopla, and what that means for you as an investor, then why not watch our latest video: