Housing market activity will be weak throughout 2023 as affordability pressures exert drag, according to Nationwide.
The building society said it expects house prices to see low single digit decline or remain broadly flat in 2024.
Robert Gardner, Nationwide’s chief economist, said: “Housing market activity was weak throughout 2023. The total number of transactions has been running at c15% below pre-pandemic levels over the past six months, with those involving a mortgage down even more (c25%), reflecting the impact of higher borrowing costs. On the flip side, cash transactions have been running above pre-Covid levels.”
He further explains the impact on house prices: “This subdued picture was also reflected in house prices, which in November were 2% lower than the same period in 2022, and 4.3% below the all-time high recorded in late summer 2022.”
Gardner highlights the ongoing affordability challenges: “Even though house prices are modestly lower and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates, which are still more than three times the record lows prevailing in 2021 in the wake of the pandemic.”
“As a result, housing affordability is still stretched,” he adds. “A borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 38% of take home pay – well above the long run average of 30%.”
Regarding the outlook for 2024, Gardner said: “A rapid rebound in activity or house prices in 2024 appears unlikely. While cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, consumer confidence remains weak, and surveyors continue to report subdued levels of new buyer enquiries.”
He concluded: “It appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim. If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline (low single digits) or remain broadly flat over the course of 2024.”
