A portion of buyers are holding off entering the market to see if house prices and mortgage rates start to fall more quickly, the latest Zoopla house price index reveals.
Data found that while demand for homes has rebounded in the first weeks of January in line with pre-pandemic levels, the start to 2023 is “more of a slow burn” than in recent years.
Rates are generally sitting below 5% and looking set to remain in the 4% to 5% range in 2023, which Zoopla says is “a much better prospect” compared to the 6% to 6.5% levels at the end of last year.
The HPI found that the average estate agent now has 23 properties for sale.
This represents an increase from 14 homes in early 2022.
Zoopla says: “This will not only provide more choice for would-be buyers, but it will also reduce the pressure on prices.”
A key risk to overall sales volumes for 2023 is unrealistic seller expectations.
It explains: “Serious sellers will need to ensure their home is competitively priced in order to secure a sale – however as the majority of homeowners have made sizable gains in their home value over the pandemic, there is more room for realism on pricing.”
Value-conscious early buyers have shifted their buying preferences towards flats, with over a quarter of new buyers (27%) now looking for one and two-bed flats, up 5% in comparison to a year ago.
In contrast, the share of demand for three-bed houses has fallen five percentage points to 39%, although Zoopla highlights that they are still the most in-demand homes across the UK.
This trend has been seen across all areas of the UK in the first few weeks of 2023 as early buyers seek better value for money.
In London, one- and two-bed flats account for 49% of demand, up from 42% a year ago.
Outside London, the average two-bed flat listed for sale on Zoopla at £196,000, which is almost £100,000 cheaper than an average three-bed home (£293,000), while one-bed flats are £150,000 cheaper.
Some of the biggest increases in share of demand for flats have been in towns adjacent to major cities including Slough (10.6 percentage points), Watford (9.2pp), Huddersfield (13.1pp) and Stockport (7.3pp).
Zoopla comments: “Buyers will remain cautious in the next few weeks before an anticipated pick-up in demand after Easter when a clearer picture emerges. However, much depends on the economic outlook, the strength of the labour market and the trajectory for consumer price inflation.”
It also suggests that the pressure on incomes, combined with the costs of running homes is also likely to drive a certain amount of movement in the market in 2023.
In the short term, low single-digit price falls in the first half of 2023 are anticipated, but Zoopla says the housing market is “in better shape to deal with the headwinds than in previous economic cycles”.
Zoopla executive director Richard Donnell says: “The first few weeks of the year have got off to a stronger start than might have been expected given how market activity stalled at the end of 2022.”
“There has been a clear shift towards flats as the early buyers focus on value for money and adjust expectations given the hit to buying power from higher mortgage rates. A proportion of existing homeowners are holding back waiting to see if sizable price falls materialise and how far mortgage rates fall back before entering the market.”
“We believe demand for homes has room to improve further in the coming weeks. Anyone serious about selling needs to be realistic on the asking price and needs to ensure this is in line with what buyers are prepared to pay.”
Hargreaves Lansdown senior personal finance analyst Sarah Coles adds: “Wait-and-see buyers will force sellers to wake up, smell the coffee, and cut their prices.”
“The Zoopla House Price Index found that house price growth slowed again at the end of 2022, and the number of properties on estate agents’ books started to build, as buyers sat on their hands. It says sellers are going to have to cut their prices to shift their homes. However, it’s more optimistic about the future.”
“After the 50% collapse in demand at the end of the year, it recovered a little in January. However, buyers are trimming their expectations, and turning their attention to flats.”
“Sellers are more resistant. It’s going to take a few weeks of quiet desperation and a dearth of viewings before they’re prepared to accept reality, so Zoopla is expecting more price cuts for properties that are already on the market in the first three months of the year – and into the spring.”
“It’s hopeful that things will improve from the spring. It expects falling mortgage rates to bring buyers back, especially if they stay between 4% and 5% in 2023. It’s also hoping we’ve staved off a technical recession for now, and that more economic optimism will mean house price falls stick to low single digits in the first half of this year.”
