As 2023 draws to a close, we are starting to see the annual round of predictions for what 2024 might bring. The last few years, in particular, have shown that predicting events even just a couple of months – or, in some cases, even a week – in advance can prove fruitless.
Nevertheless, there would be something amiss if we didn’t at least attempt to look ahead to what the next 12 months might have in store.
House price forecasts are always front and centre in any forward-looking predictions, and given the weight they are given, you could be forgiven for thinking they are the sole indicator of the condition of the market. However, it is important not to lose sight of the other factors that determine the health of the market.
It is really the number of transactions that show the true nature of how healthy the market is. Of course, if people are transacting, then by virtue, there is more demand and therefore prices are generally going up. Vice versa, in a market where there are fewer transactions, generally, house prices are either stable or falling. Nevertheless, when we look to what next year might bring, we need to look at house prices and transaction figures side by side to have a full picture.
National house price indices can also provide too broad a measure and do not always give an accurate representation of what is happening in every corner of the UK.
Recent analysis from Halifax, for example, showed how different the housing market across the UK can be. While its figures showed house prices were down by -3.9% over the last year, this is far from uniform across the whole of the UK.
Powys in Wales, for example, saw increases of 17.4% over the year, followed by East Lindsey in the East Midlands with gains of 13.3%. While there is normally a local reason for the anomaly, it goes to show how prices can be very different depending on where in the country you focus.
Still, there can be a tendency for us to take what house price indices say as gospel, and as a country, we can get swept up in any falls or increases. Perhaps not surprising given property will be the biggest asset many own and price falls of just 1% can feel like losing money in real terms — especially if the property is being used to fund retirement.
Property programmes on TV have over the years also fuelled our obsession with house prices, making it somewhat of a cultural obsession. The less glamorous property transactions, however, are still an important facet. So, what can we expect from both next year?
The Office for Budget Responsibility (OBR) was one of the first to start the forecast season. It predicts residential housing transactions will fall by 6.9% in 2024 to 934,000 before topping one million in 2025, reaching 1.1 million in 2026, 1.2 million in 2027, and climbing to almost 1.4 million in 2028.
Meanwhile, it forecasts residential house prices to grow by 0.9% in 2023 and then fall by 4.7% in 2024. They are expected to decrease again by 0.5% in 2025 before gaining 3.4% in 2026 and 3.7% in both years thereafter.
On the other hand, Savills forecasts transactions to remain at around 1 million in 2024, rising to 1.1 million in 2025, 1.2 million in 2026, and staying at this level until the end of 2028. Regarding house prices, it predicts they will grow by around 17.9% over the five years to 2028. After a fall of 3% in 2024, it expects prices to climb 3.5% in 2025, 5% in 2026, 6.5% in 2027, and 5% in 2028.
Similar to national indices, this will not be reflective of individual parts of the country. There will always be corners that outperform and others which underperform the national ‘average’.
From the data, while the two forecasts generally depict transactions rising and falling in line with house prices, there are some later years, particularly in Savills’ projections, where the pace of house price growth seems to be outperforming transactions. Similarly, the OBR shows that, in 2025, house prices are expected to decline while transactions increase.
While we know nothing ever quite goes according to plan in the mortgage market, it is fair to say the general sentiment is that we are in for some more challenges next year before we see gains in 2025.
In terms of transactions, there is an argument they can serve as a more reliable indicator of growth than prices directly, which is why when looking ahead, it’s important we don’t get too fixated on house prices alone.
Simon Jackson is managing director of SDL Surveying
