6th Jan 2023 14:31
(Alliance News) - According to data from Halifax on Friday, the average UK house price fell in December against the prior month, though at a more moderate decline than seen previously.
The average UK house price was GBP281,272 in December, a fall of 1.5% against the previous month. In November, house prices fell by 2.4% to GBP285.425.
Against the previous year, house prices grew by 2.0%.
Davy Research noted that this painted a far gloomier view of the UK housing market than presented by the alternative Nationwide index, published earlier this week.
Nationwide said house prices fell by only 0.1% in December, with the index down 2.5% since August.
However, analysts at Davy Research argued that the Halifax measure has "proven to be the more reliable and less volatile of the two house price indices in the past".
Halifax said that the cost of the average home remains greater than it was at the start of 2022, however, and more than 11% higher than house prices at the beginning of 2021.
Commenting on Friday's data, Andrew Wishart of Capital Economics said that the idea that the housing market can have a "soft landing" looks "increasingly like wishful thinking".
"Instead, 2023 is likely to be a year of difficult adjustment to the higher interest rate environment," he said.
According to Halifax, the housing market will continue to be impacted by the wider economic environment as we enter 2023, and, as buyers and sellers remain cautious, it expects there will be a reduction in both supply and demand overall.
As a result, Halifax forecasts house prices to fall around 8.0% over the course of the year.
An 8.0% decline in house prices would mean the average property price returns to April 2021 prices, which is still significantly above pre-pandemic levels.
interactive investor's Victoria Scholar said the UK housing market looks set to struggle under the weight of rising mortgage rates and broader inflationary pressures such as the high cost of energy and food which are squeezing the consumer and weighing on housing demand.
"Many individuals and households are holding off from purchasing properties on the back of slimmed-down budgets and in the hope that mortgage rates and property prices become more affordable down the line. Offsetting an even steeper slide in the UK property market is the chronic shortage of houses and the macroeconomic backdrop of build cost inflation," she explained.
Analysts at Liberum were more optimistic about the housing market, however, expecting house prices to fall by just 5% in 2023.
"We are at the optimistic end of analysts' forecasts as we don't expect homeowners or developers to be forced sellers, the market remains undersupplied and employment is expected to hold up well," it explained.
The expectation of a 5% drop put the investment bank in the middle of the range of agents and economist forecasts, it said. Though it acknowledged that housebuilding analysts' have a range of 5% to 15%.
Liberum explained that the outcome for 2023 house prices depends on where mortgage rates are in the early part of the year.
"The peak selling season runs from February to April, ramping up quickly in January. We expect the best mortgage rate offers to be between 4.0% and 4.5% in this selling season. This should enable activity levels to stabilise and house prices to adjust only modestly, based on affordability analysis, assuming around 4% wage inflation in 2023."
Liberum said it is arguing for a softer landing than most, because it thinks that house prices will be supported by a labour market which is not expected to deteriorate significantly, a housing market that is under-supplied, and the fact major major housebuilders are not indebted so do not need to "run for cash by liquidating unsold houses."
In addition, Liberum said it does not expect much forced selling from homeowners as "lending discipline has stopped them overstretching themselves as in past cycles."
On the basis of this case for the housing market, Liberum said it saw a 28% upside in housebuilding shares. Its top picks are Barratt Developments PLC, Bellway PLC, Berkeley Group Holdings PLC, and MJ Gleeson PLC.
On Friday afternoon in London, housebuilding stocks were largely in the red.
Out of Liberum's top picks, Barratt was down 0.2% at 429.60p, Bellway down 0.2% at 2,040.50p, while MJ Gleeson was trading flat at 360.00p and Berkeley was up 0.5% at 4,040.00p.
Outside of Liberum's top picks, Persimmon PLC was down 0.8% at 1,305.25p and Taylor Wimpey PLC was down 1.0% at 107.10p. Vistry Group PLC, meanwhile, was up 0.2% at 679.50p.
By Heather Rydings, Alliance News senior economics reporter
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Related Shares:
Barratt DevelopmentsBellwayBerkeley GroupMJGleesonPersimmonTaylor WimpeyVistry Grp