Are House Prices in the UK Declining in January 2024?

The past year has seen a decrease of -0.8% in UK house prices, resulting in an average house price of £264,400. Explore the regions, cities, and local authority areas experiencing the most notable declines in house prices in January 2024.

Key Highlights from Zoopla's House Price Index:

Zoopla reports that UK house prices are still experiencing a decline, albeit at a slower rate compared to previous months. As of now, the average UK house price stands at £264,400, reflecting a decrease of £2,100 from a year ago, with no change from the previous month.

Regions like the East of England (-2.5%), the South West (-2.2%), and the South East (-1.9%) have witnessed the most significant drops in house prices. Among cities, Aberdeen (-2.9%), Southampton (-2.7%), Portsmouth (-2.4%), and Cambridge (-2.6%) have been particularly affected.

Zoopla anticipates continued house price declines in 2024, attributing the trend to higher mortgage rates resetting affordability levels. Despite the ongoing declines, home values across the UK remain notably higher than pre-pandemic levels, even in areas experiencing substantial price falls.

Zoopla's House Price Index, tracking the fluctuation in house prices nationwide, indicates a -0.8% decrease in prices compared to a year ago. While the average UK house price is currently £264,400, the rate of decline has shown signs of moderation, especially as sales activity has increased in the early weeks of 2024.

Buyers and sellers are reportedly finding common ground on pricing, alleviating some of the downward pressure on sale prices. The annual fall of -0.8% to December 2023 is a notable improvement compared to the previous three months, which experienced declines of -1.1%, -1.4%, and -1.2%.

Where are UK house prices falling in January 2024?

Regions:

In Southern England, homeowners are witnessing the most substantial decline in house prices. The East of England (-2.5%), the South West (-2.2%), and the South East (-1.9%) are particularly affected, with higher mortgage rates contributing to reduced demand, especially in pricier regions. Notably, these declines are comparable to or smaller than those observed in the previous month.

Conversely, Northern Ireland and Scotland are experiencing positive trends, with property prices now +3.1% and +1.8% higher than a year ago, surpassing last month's +2.1% and +1.3% figures in these regions. In areas with lower average house prices, such as these, the market remains active, supported by the ability of buyers to afford homes even with slightly elevated mortgage interest rates, leading to slow but steady increases in house prices.

Cities:

Cities in the South of England, alongside Aberdeen (-2.9%), which has a housing market closely tied to the local economy and oil industry, are grappling with significant house price falls. Southampton (-2.7%) and Portsmouth (-2.4%) lead the chart for the most substantial declines in England in the year to January 2024. Following closely are Cambridge (-2.6%) in the East, Bournemouth (-1.9%) on the south coast, Leicester (-2.0%) in the East Midlands, and Bristol (-1.9%) in the South West.

These Southern cities, which experienced robust buyer demand and considerable price growth during the pandemic, are now facing downward pressure on local property prices as demand wanes and supply increases.

In contrast, more affordable cities in Scotland, Northern Ireland, and the North of England continue to witness gradual increases in house prices. Noteworthy locations include Belfast (+3.2%), Glasgow (+1.3%), Edinburgh (+0.9%), Liverpool (+0.9%), and Leeds (+0.6%).

Local Authority Areas:

Parts of Kent, Essex, and Norfolk are witnessing substantial declines in house prices, particularly areas that experienced sharp price increases during the pandemic due to strong demand driven by the 'race for space' or lifestyle influences. However, these regions are now grappling with decreased demand amid rising supply attributed to higher mortgage rates, exerting downward pressure on house prices.

2024

2023

Why are UK House Prices Falling?

The recent decline in UK house prices can be attributed to higher mortgage interest rates, presenting a significant hurdle for potential homebuyers and diminishing overall demand for properties. Concurrently, there has been a surge in the number of homes available for sale compared to recent years.

This combination of factors has created a buyers' market, characterised by increased options for buyers, compelling sellers to adopt more competitive pricing strategies to secure sales. Although buyer demand has risen by 12% compared to the previous year, it remains 13% below the 5-year average.

Several key indicators in the housing market have shown improvement compared to the previous year when the impact of elevated mortgage rates was first felt. There is a notable 13% increase in agreed sales, a 14% rise in new homes entering the market, and a substantial 22% surge in the overall number of homes for sale.

Despite these positive shifts, it is crucial not to overstate these improvements, as the market continues to favour buyers. People remain highly price-sensitive and value-focused due to the prevailing high mortgage rates.

Will House Prices Continue to Fall in 2024?

Yes, the data indicates a continued gradual decline in house prices throughout 2024. After three years of robust price growth leading up to 2022, the impact of higher mortgage rates is resetting the affordability threshold for prospective homebuyers.

Despite a modest decrease in house prices in 2023, the UK housing market still appears to be 10-15% overvalued by the end of the year.

The expectation is for this overvaluation to diminish in 2024 as incomes rise and house prices experience a marginal 2% decrease. Sales volumes are anticipated to remain steady at 1 million completions throughout the year. Lenders are currently stress-testing new borrowers at rates exceeding 8%, even as actual mortgage rates start to decline. This regulatory constraint on buying power contributes to the projection that house prices are unlikely to rise in 2024, even if the Bank Rate begins to fall later in the year.

The trajectory of house prices will be influenced by the course of mortgage rates and how lenders assess affordability. Some economists predict that the Bank of England will commence rate cuts around summer 2024, potentially leading to lower mortgage rates and a subsequent uptick in housing market activity towards the end of the year.

Why Didn't House Prices Fall Further in 2023?

Historical patterns suggest that a rise in mortgage rates from 2% to 5% or higher would typically result in more substantial house price declines than those observed in 2023. However, several factors have contributed to the relatively moderate declines.

The resilience of the labour market and substantial growth in average earnings have played a pivotal role. Lenders' forbearance policies, aimed at supporting households grappling with repayment challenges, have limited the number of forced sellers. A crucial factor is the more stringent mortgage affordability testing for new borrowers since 2015.

These regulations were implemented to prevent households from taking on excessive debt, curbing the artificial inflation of house prices. This has prevented significant housing overvaluation and ensured that most households can manage the transition to higher mortgage rates, although a substantial portion of homeowners is yet to undergo this transition.

Written by Veera Josey, 31st January 2024

Source: Zoopla