The start of 2023 has proved more stable economically than many anticipated, with forecasts suggesting any economic downturn will be less extreme than first predicted. Consumer and business confidence is improving, and whilst fragile, is rebounding from historic lows. The latest GfK tracker increased seven points in February to -38, its largest monthly uptick in nearly two years, with all five measures relating to the wider economy and personal finances up in comparison to January. This is supported by the latest economic index which indicates there was a return to private sector growth in February, with business activity at an eight-month high and manufacturing output at a nine-month high (S&P Global/CIPS Flash UK PMI).
Although the Bank of England reports that approvals in January fell to their lowest level since May 2020, it is clear the housing market continues to transact. Seven in ten agents are sensing there are more cash purchasers in the market, according to the Dataloft Opinion Poll. Sales volumes in January are on par with the pre-pandemic January average (HMRC). Despite buyer demand being 51% lower than the same time a year ago, it is still 8% ahead of the pre-pandemic average of the years 2017 to 2019 (Zoopla). For those requiring a mortgage, the market continues to stabilise, with product choices increasing. There are more than 4,300 different deals now available, the first time since August 2022 that product choice has surpassed 4,000 (Moneyfacts), presenting plenty of opportunities for buyers.
After two years of limited new supply to the market, there are signs of more balance as supply returns to normal levels. Zoopla report a 60% increase in stock year on year, creating choice and giving prospective home buyers options and more room to negotiate on price. Average new seller asking prices rose by just £14 between January and February, the smallest ever increase between the months (Rightmove), indicating that sellers may be being realistic on pricing and listening to their agent’s advice. There may be a pause in demand if anticipated falls in mortgage rates encourage buyers to hold off and hedge their bets. Indeed Nationwide reported the first annual fall in sales prices for the first time in nearly three years, falling 1.1% in February 2023.
Annual price growth in the prime market is currently outpacing the wider market, where month-on-month prices are showing signs of moderating. In England and Wales the average price of a prime market property has risen 9.8% year-on-year. London has seen the strongest growth at 11.4%, closely followed by the South West (11.2%) and the East of England (10.2%). Wealthier buyers are largely shielded from the higher mortgage rates which have impacted the wider market and the value of the pound remains attractive for international buyers. New instructions for homes priced at £5 million were 74% higher in the last quarter of 2022 compared with their pre-pandemic average (LonRes).
Sales levels in the first two months of 2023 look to be returning to pre-pandemic levels, after the unsustainable activity of the last two years. The economy is fragile, but has fared better than expected.
