UK Property Market vs Economy: What comes next? Where are we now?

The media love a good old bit of negative clickbait don’t they? But are they right this time? Are we heading for a market crash? Is the country tipping into recession?

We don’t have all the answers. But, in this 2022/23 market review we have spoken with a former government behavioural economist, several mortgage specialists and digested the most recent house price index reports too. We hope this will give the readers of this blog a solid base of information to make key decisions in the next few months.

Inflation

The word crisis is being thrown about a lot by the media at the moment. Broken down, there are 3 types of crisis:

• A creeping crisis, a result of a series of events that don’t correlate into a pattern.
• A slow-burn crisis, an advance warning before a situation has actually caused any damage.
• A sudden crisis, the damage has happened and unless there is a response it will continue to get worse.

(We will come back to this)

Inflation is being reported between 8-10%. A recent story in The Guardian stated that inflation is 9.1% and a 40 year high! Economists that are not on the media payroll, are suggesting the war in Ukraine is responsible for 3-4% of this inflation.

Core inflation is therefor circa 6%. This is a result of £76Bn in wages being paid out by the Government for furlough (for no actual productivity or work).

Splitting the ‘Crisis’ into two… the core inflation is a creeping crisis and the 4% for the war clearly a sudden crisis.

Will this have an impact on property prices in our view?

Normally you would say yes. Yes is the right answer in a word, but in the context of what we have experienced in the property market for two years, will it cause a market crash?

We don’t think so. If the base rate climbs, mortgage rates will climb and this will slow buyer levels down from where they are today. As it stands the cheapest mortgage rate for a residential purchase is over 3%. Six months ago you could get a mortgage under 1%.

Employment Shortage/Brexit

This a real issue for the UK currently. Call it a slow burn crisis.

It was very clear to see 15/16 years ago the UK would have a shortage of ‘young’ workers. As it stands we are short 1.8 million 16-25 year old workers. Now we are out of the EU you can add the 1.2 million Europeans who have returned home to that number too.

The UK is not alone, given demographics all the following major countries need a labour boost:

Japan, Italy, Portugal, Germany, France and China.

Germany addressed their shortage by allowing 800,000 Syrians into their country. Their unemployment level is still as low as 2.2%!

Watch out for the media reporting things like ‘New Car Sales are down 20%’ like they did in April… Yes, because of supply not demand. That’s what all the months of shutting factories down due to Covid-19 will do to production. It is just how the 'click bait' headline gets spun.

Watch this space…

House Price Index Reports

Rightmove this month reported that rental property prices is up 5% quarter vs quarter. The average cost to rent a property in London is now as high as £2,257pcm.

The rental market is on fire at the moment! More so than the sales market, and this is very much down to Landlords selling at a 2:1 ratio in comparison to buying. 10-15 tenants could be fighting over every and any new property at the moment.

In the sales market Halifax recently reported a 13% growth year on year for the UK. Meaning the average UK property owner has gained around 30k in equity in just one year.

Zoopla reported buyer demand last month is up +40% on the last 5 year average. Properties for sale in the UK at -33% for the same 5 year average.

Nationwide in their last report, showed a graphic of a massive 23.3% price increase in the South East since the pandemic. Their report shows the average South East house price is now £348,564.

So the bit you have waited for…

What is going to happen to UK house prices over the rest of the year and the next?

We spoke to David Howorth from AFP Mortgages. His view is that the market will have to slow down in context, because of climbing interest rates he does not think the market can keep pushing 12/14% year on year for ever….

We chatted with Dom Brierley, Independent Financial Adviser. His view is that mortgage enquires are still super high. As inflation results in further base rate jumps and mortgage rates go up further then a version of a ‘slow down’ will have to happen. He still feels prices will climb over the short to medium term though.

At Avocado, all the partners feel the property market is different to what it was in 2021 and the first quarter of 2022. Open houses have slightly less volume for viewers. There are more properties on the market with a number property prices being reduced in Q2 of 2022.

We feel the market is likely to stay busy (in context) for the rest of this year. Will prices increase over 10% again for the whole of 2022? Maybe, we expect somewhere around 9%.

Will we go into a recession in the UK? At Avocado we don’t think so, but if we do, we expect it to be more likely in the second half of 2023.

Is now a good time to move home? If you want to move, then move… If you need to move, then move… If you are waiting for a market crash? Don’t gamble on it. We still think today is the cheapest day to buy a property.

So, there you have it. That is our 2022/23 review of The Economy vs Property. If you have questions or you would like to get involved in the blog, then please reach out or feel free to make a comment.

You can book in a property valuation with us via this link too