Get the latest with our House Price Index - May 2023
Buyers continue to return to the housing market
The sales market continues to see a return of buyers with more new sales being agreed. In recent weeks, the demand for homes reached its highest level since last October when the fallout of the mini-budget hit activity. Demand is 16% higher than this time in 2019.
All areas are registering an improvement in market conditions with some areas doing better than others. We continue to register above-average demand for housing in the most affordable areas led by Scotland, Wales, the North East of England and London.
Demand is weaker in regions where prices jumped the most over the pandemic and where prices are higher than the national average.
These are markets where higher borrowing costs impact buyer power, covering the southern half of England and the Midlands.
![A chart showing that buyer demand, agreed sales, new supply are down vs last year while stock of homes for sale is up 65%](http://images.ctfassets.net/02vwvgr6spsr/7L8iA28FpIrptWpUBDbJBx/7191f7fdcbaf784f6d22d1037988f56f/Zoopla-house-price-index-housing-market-indicators.png?w=600&fm=jpg)
Sales volumes reveal a truer picture of housing market health
A more important indicator of market health is the number of new sales being agreed - homes sold ‘subject to contract’.
Sales agreed are 16% lower than this time last year (demand is 43% lower), but 11% higher than 2019 levels and on an upward trajectory.
Last year saw a chronic undersupply of homes for sale, which pushed prices higher but acted as a drag on sales completions.
There are 65% more homes for sale than a year ago. The average estate agent has 25 homes available compared to a low of 14 homes this time last year. This is a positive change and improves buyer choice, meaning sellers need to price sensibly if they are serious about moving.
Sellers continue to make modest downward adjustments to asking prices. This ensures pricing matches what buyers are prepared to pay. At the same time, they are accepting discounts to the asking price averaging 4% or £14,000. The scale of price gains over the pandemic enables sellers to adjust pricing while continuing to agree sales, unlocking their desire to move and supporting sales.
Time to sell is longer than last year - but still quicker than in 2019
The time to sell a home - from being first listed to going under offer - has jumped by 71% (15 days) since this time last year when the market was very strong.
However, the time to sell remains below 2019 levels in most areas. Scotland has the shortest sales periods at 28 days as homes are marketed with a survey and valuation. London has the longest time to sell at 44 days. This is further evidence of a return to 2019 levels of market activity.
![A chart showing that homes are selling faster than in 2019 in all regions, although still slower than in February 2022](http://images.ctfassets.net/02vwvgr6spsr/5Uj0XMdY8Wd1jv6Ra2MMl8/600699ff55032f9cc322dd0ab46fa528/House-price-index-homes-selling-faster-than-in-2019.png?w=600&fm=jpg)
On track for half a million property sale completions in the first half of 2023
New sales agreed, subject to contract, can take 2 to 6 months to turn into a completed sale, when the buyer gets the keys and moves in.
Some deals will fall through during this period and often homes are resold to another buyer.
Completions are important as they drive estate agent commission and mortgage lending.
Our analysis of new sales agreed data over the last 9 months indicates that we are on track for half a million sales completions in H1 2023.
This run rate points to 1 million sales over 2023, in line with our forecast. This is well ahead of the years following the global financial crisis of 2008-2011.
![A chart showing the number of property transactions in the first half of every year since 2007, with 500k expected by the end of June 2023](http://images.ctfassets.net/02vwvgr6spsr/1KCNZsV06wPgoGzojJmX7n/a4dcce378ec06b355b148722a6ad898b/House-price-index-500k-property-sales-expected-in-first-half-2023.png?w=600&fm=jpg)
Motivations for home moves continue to support activity
We believe there is some upside to this outlook for sales completions over 2023 with several factors supporting the desire to move.
Working from home 1-2 days a week is becoming the norm for many office-based workers. It means people can look further afield for a home than has been the case in the past, enabling a search for better value for money.
The spike in retirement caused by the pandemic is also a trigger for home moves. At the same time, cost-of-living pressures will continue to encourage some to down-trade from larger homes that are expensive to run.
Lower price bands increase share of sales in first quarter of the year
Buyers seeking better value have driven a clear shift in the price bands registering the greatest increase in sales.
While mortgage rates have fallen back towards 4% for new loans, the average homebuyer still has 20% less buying power than a year ago.
This doesn’t mean average house prices need to fall by this much. However, it does mean buyers are seeking out better value-for-money areas, smaller homes or supporting their purchases with larger deposits.
Comparing sales in the last month to the same time last year, we find an increase in the share of sales in the cheapest 40% of the market by price. We also see a drop in the share of sales in the higher-priced top 40% of the market by price.
This is clear evidence of continued demand from first-time buyers or second-steppers.
It also signals more caution on the part of existing homeowners. Upsizing into a bigger home will cost much more in mortgage costs and homeowners may be waiting to see what happens to economy before entering the market.
This is a consistent trend across all regions and countries of the UK. On average we are seeing a 5% increase in the share of sales at the lower end of the market and a 4% fall at the top end. The top end of the London market is the only area bucking this national trend with an increase in the share of sales in the top 20.
House price growth slows to 4.1% year on year
Our index shows that annual house price growth continues to slow to 4.1% - down from 9% a year ago. Our index has fallen by just 1% since last October.
The quarterly growth rate has been negative for the last 3 months. It’s the weakest rate of quarterly growth since 2011 as the market continues to go through a swift repricing nationally.
The annual rate of growth has slowed sharply across major cities, where house price inflation was running in double digits a year ago to less than 6% now. The weakest annual growth is in London where higher mortgage rates hit demand harder in higher-value markets.
![A chart showing that annual house price growth is slower than in August and November 2022 across major cities of the UK](http://images.ctfassets.net/02vwvgr6spsr/BDYWAeomySekgzrBrTs6G/1aafc8cb1e8e57b5cdc98fad73502720/House-price-index-house-price-growth-slows-in-major-cities.png?w=600&fm=jpg)
Outlook for the housing market in 2023
As we end the first quarter of 2023, the housing market is in much better shape than many predicted at the end of 2022. Arguably, the market is more in balance than at any time for the last 3 years.
The market is going through a soft re-pricing process with modest quarter-on-quarter price falls across all regions and countries of the UK.
The positive news is that buyers and sellers are agreeing deals which are supporting sales activity. In turn, it drives business plans and revenues for agents, lenders and builders.
There is no evidence of a major mismatch between buyers and sellers that would suggest house prices and transaction volumes are going to suddenly drop lower.
Markets that have the best affordability will continue to attract demand and see above-average levels of sales.
The onus on all sellers is to make sure pricing aligns with buyers' expectations. If you are serious about moving, you simply cannot afford to over-price your home.
The shift towards lower mortgage rates has improved market activity. Mortgage rates are set to remain around 4% over much of 2023 and could move lower towards the end of the year.
While mortgage rates remain 2 x higher than early last year, we still expect to see 1m sales transactions in 2023. We also anticipate ‘peak to trough’ house price falls of up to 5% in localised areas.
Activity starts to recover in inner London markets
We expect the housing market in inner London to be stronger than it has been for some time, largely resulting from a prolonged period of underperformance.
The inner London flats market has seen no change in average prices since 2016 which are 24% lower in real terms. It remains an expensive market but has become better value in the last 6 years compared to other markets further afield.
We don’t see prices rising fast, but we do expect more sales which will be welcome news for sellers in a market where conditions have been challenging.
First-time buyer numbers hold up
The rapid pace of rental inflation - up 11% in the last year - is also keeping pressure on would-be first-time buyers (FTB) in the rental market to become owners. FTBs accounted for 1 in 3 sales in 2022.
We believe that FTB numbers will continue to hold up this year as would-be buyers seek smaller homes and better value for money. Mortgage repayments are below rental costs in many regions at 4% mortgage rates so getting a deposit will remain the big hurdle.