British House Prices Continue to Fall, but Market May Avoid Hard Landing
According to the Nationwide Building Society, British house prices fell by 3.8% in July compared to the previous year. This decline is faster than the 3.5% drop recorded in the previous month. While economists were expecting a slightly larger decline of 4%, it is worth noting that this is the third consecutive month of falling prices at their fastest pace since the global financial crisis in 2009. The data suggests that the 13 interest rate increases from the Bank of England since the end of 2021 have put a strain on consumers’ ability to afford properties.
Since their peak in August, house prices based on Nationwide’s data have fallen by about 4.5%, with the average price now standing at £260,828. Despite this decline, the market has managed to avoid the collapse that seemed possible last autumn when borrowing costs soared to 14-year highs following an ill-fated budget announcement by then-prime minister Liz Truss. In fact, in November, Nationwide had warned of a potential 30% drop in prices in a worst-case scenario. However, the chief economist of Nationwide, Robert Gardner, believes that a “relatively soft landing is still achievable.” Another economist for the lender forecasts a peak-to-trough decline of around 6.5%.
Senior Nationwide economist Andrew Harvey expects modest falls in prices for the remainder of the year. In July, prices fell by 0.2% compared to June, following a 0.1% gain the previous month. Bloomberg Economics, on the other hand, maintains its forecast for a peak-to-trough decline of around 10%, suggesting that there is still a further 5.5% to lose. The economist Niraj Shah at Bloomberg Economics believes that borrowing costs will remain elevated, leading to a continued adjustment in house prices despite some recent resilience.
In June, there were 86,000 completed British housing transactions, which is 15% lower than the levels seen a year ago and about 10% below pre-pandemic levels. Housebuilders have scaled back on projects in anticipation of fewer buyers. Building supplies company Travis Perkins reported lower revenues and a 31% drop in adjusted operating profit due to “significant weakness” in the UK’s housing sector. The company stated that it had been negatively impacted by a “notable reduction in housing transactions” as interest rates rose.
Nicola Schutrups, a mortgage broker at The Mortgage Hut, commented on the situation, saying, “There’s a lot of uncertainty among people looking to purchase a new home, so it’s no surprise prices continued to edge down on both a monthly and annual basis in July.” Schutrups believes that further falls in house prices are likely for the rest of 2023.
Overall, while British house prices have been declining, there is still a chance that the market can avoid a hard landing. The impact of interest rate increases and a cost-of-living squeeze on property prices, along with the overvaluation of homes compared to incomes, will continue to weigh heavily on the housing market. Only time will tell how the market will ultimately fare in the coming months.