Housing market decline Jan 2023

RICS January 2023 Survey Analysis: Unpacking the Housing Market Downturn

The Royal Institution of Chartered Surveyors (RICS) has released their January 2023 Residential Survey, which provides valuable insights into the state of the UK housing market. The report reaffirms that the housing market continues to be ‘muted’, where new listings, homebuyer demand, sales and house prices are all on a downward trend. According to RICS, this is likely to linger until the market is regulated in line with higher interest rates.

Overall decline in the UK housing market

The housing market has undergone significant twists and turns over the last years. First, the COVID-19 pandemic observed soaring buyer demand and rising house prices. A year later, the huge spikes in inflation, which was last seen during the 2008/9 financial crisis, had mortgage lenders withdrawing products, landlords and tenants struggling to adjust to rising rental prices, and buyers unable to afford new mortgage rates. In fact, HSBC has only just reintroduced a five-year fixed mortgage at 3.99% – the first five-year fixed mortgage product since the government announced its mini-budget in September last year. While the housing market naturally fluctuates, the dramatic changes that ensued in the last two years have been a whirlwind for homebuyers, sellers, landlords and tenants alike.

Consequently, it’s no wonder that the latest RICS Residential Survey has reported more substantial findings. The survey claims that buyer interest has slipped for the ninth consecutive month, down to -47% in January 2023 from 40% in December 2022. According to Money Week, this is the weakest monthly reading since April 2008, just months before the investment bank Lehman Brothers collapsed and spurred a major economic recession.

Decline in new instructions from sellers

It wasn’t just buyers that were withdrawing interest. In January 2023, there was a -14% net balance of new instructions from sellers. It seems that sellers are also put off moving for now, despite some experts warning of an influx in fresh listings when the mortgage lender chaos ensued. But the RICS Residential Survey suggests that sellers are currently reluctant, which may be due to the inherent economic uncertainty within the current cost of living crisis. However, completed sales were not quite as bad as the rest of the data at -20% in January 2023 up from -42% in December 2022. The next few months will no doubt be closely monitored by estate agents to see how many new listings will arrive. With longer fixed-rate mortgages heading back to the table, there may be less reluctance among buyers and sellers alike.

Growth in demand for rentals, but drop for rental listings

The RICS Residential Survey also looked into renting trends. The high demand has continued to grow for rentals, where landlords are experiencing huge tenant enquiries. Towards the end of 2022, there were as many as 13 tenants per rental listing, which could potentially be attributed to the inability to secure an affordable mortgage for home buying in this time. In January 2023, tenant demand net balance comes in at +43% across the nation.

However, it wasn’t just tenants unable to keep up with mortgage rentals. RICS report a -14% net balance for new rental listings. Recently, landlords have struggled to keep up with changing government legislation and inflated mortgages, leading many to sell up instead. In December, the number of landlords selling increased by 13% in just four months, further fuelling the number of tenants desperate to secure accommodation. Overall, it seems like the rental market and the housing market are heading in different directions when looking at supply and demand.

Decline in house prices

Finally, the survey revealed the impact of low buyer interest and new listings on house prices. RICS found that house prices continue to be in decline, where January’s net balance was -47%. This was particularly true for homes in the South East and East Midlands.

The drop in house prices seems to be symptomatic of an economic recession. The 2008/9 financial crisis also had a significant impact on house prices in the UK. In the years leading up to the crisis, house prices in the UK had been rising rapidly, fuelled by easy access to credit and a booming economy. This echoes 2021, where house prices rose dramatically due to high buyer demand. However, when the global financial crisis hit in 2008, it led to a sharp drop in house prices in the UK.

How does today’s property market compare with the 2008 property market?

housing market 2008 financial crisis recession

One of the primary reasons for the drop in house prices was the tightening of lending standards. Banks and other financial institutions had been offering mortgages to individuals with little or no deposit, and many of these borrowers had taken on excessive amounts of debt. When the crisis hit, banks became much more cautious about lending, and many potential homebuyers found it much harder to secure a mortgage. This led to a drop in demand for housing, which in turn caused prices to fall. Although banks haven’t necessarily been dishing out mortgages as freely as pre-2008, the recent shift towards stricter and more cautious lending is somewhat comparable.

Drawing on the similarities between the former economic recession and the current cost of living crisis, and their respective impacts on the housing market, is useful for predicting what might happen to house prices next. Following the 2008 financial crisis, house prices in the UK dropped radically in 2009 and took a few years to stabilise and grow again.

The recovery in house prices was partly driven by a combination of low interest rates, government stimulus programs, and a shortage of housing supply in some parts of the country. As the economy began to improve, demand for housing picked up, and this led to a gradual increase in prices. This shows the need for similar conditions to be brought back, further pointing towards the need to lower interest rates and boost the economy. As house prices didn’t recover until January 2013 according to statistics, it may take some time before we see current house prices return to pre-crisis levels and beyond. The Bank of England states that the current recession will be shorter than anticipated, so hopefully we can start to see a healthier property market sooner rather than later.

So, is now a good time to sell?

With house prices in decline, many people are wondering whether it’s a good time to sell their property and buy a new one. Before making this decision, it’s a good idea to know how much your present home is worth in the current market. Getting a house valuation from a RICS Chartered Surveyor can give you an objective costing to help you plan ahead.

If you want to inquire about a house valuation, get in touch with CJ Bloor today for non-obligatory, friendly advice.

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