2023 will go down as a subdued year for the housing market. The cost of living squeeze coupled with yo-yoing mortgage rates created an air of uncertainty and meant that households chose to sit tight rather than move. But while transactions bore the brunt of the slowdown, a house price crash didn’t materialise. Instead, price falls from a range of indices appear to have been limited to a maximum of 5% across the country.
In line with our forecast, it’s likely we’ll end the year with around 1m homes changing hands across Great Britain, 19% or 230k fewer than in 2022. However, green shoots appeared as the year progressed.
Confidence among house hunters began to return in the second half, prompted by falling mortgage rates and greater economic stability. Consequently, the housing market is entering the new year on a much firmer footing than it was 12 months ago.
Although confidence could still be vulnerable to economic shocks and global events, we expect to see more prospective buyers enter the market this year, many of whom sat tight in 2023. This might start to shift the power back into the hands of those selling and should also begin to put a floor under prices, limiting the chance of further falls.
ACHIEVED PRICING
In many cases, the mismatch between what price sellers expected to achieve on their home and what buyers were prepared to pay prompted more negotiation last year.
While 24% of sellers in England & Wales still sold above their asking price in 2023, 55% achieved less than they asked. This marked a significant change from 2022’s heated market. However, a lack of forced sellers continued to put a floor under prices and meant that more vendors sold above their asking price than in any year between 2008 and 2020.
Of the buyers successfully negotiating a deal last year, they achieved a 3.5% discount on average, less than the 5.1% discount negotiated in 2009 when prices were falling further and faster.
In terms of prices being achieved, November appeared to mark the bottom of the market. Two months ago, the average seller in England & Wales sold their home for 98.3% of the final asking price, down from a record 101.3% when the market peaked in April 2022.
However, November’s figure partly reflected the fact that homes that had been on the market for a while increasingly began to sell towards the end of the year as confidence improved. Consequently, asking to achieved prices picked back up to 98.6% in December, exceeding the pre-Covid monthly average of 97.4%.
As affordability improves and demand strengthens, it’s likely that buyers will have a little less negotiating power than they did in 2023. This recovery in 2024 is set to be led by Southern areas where high mortgage rates cooled demand the most during 2023.
The North East was the only region where the average seller continued to sell their home above the asking price last year. Meanwhile regions that saw some of the strongest price growth in 2022, such as Yorkshire & The Humber, the South West and North West, saw the biggest falls in the ratio of asking to achieved prices last year.
DAYS TO SELL
Economic uncertainty and yo-yoing mortgage rates made buyers hesitant in 2023. This meant that it took longer to sell a home in Great Britain last year than during any of the last 10 years. With an average of 56 days between a home coming onto the market and it going under offer, on average sellers had to wait 22 days longer to find a buyer than in 2022.
This slowdown was most deeply felt at the top end of the market, where homes tend to take longer to sell. Homes sold between £500k and £1m saw the biggest annual increase in the number of days it took to go under offer. This part of the market tends to be dominated by upsizers, particularly in the South of England, who have been hit hard by higher mortgage rates, limiting their ability to borrow extra funds to move up the ladder.
Meanwhile smaller and cheaper homes have fared better as many first-time buyers have traded down their expectations to purchase their first home.
PRICE REDUCTIONS
As higher borrowing costs eroded many buyers’ budgets, sellers were forced to adjust. A record 50% of homes sold in England & Wales last year were sold following a price reduction, up from 32% in 2022.
Of the homes sold following a price reduction, the average buyer went onto negotiate an extra 1.4% discount from the final asking price.
Price reductions peaked in October when 54.6% of homes sold in England & Wales had their asking price cut. This partly reflected the point when the market began to improve, with homes that had been on the market for some time having undergone price reductions before selling. In December, however, 51.5% of homes were sold following a price reduction.
January is likely to see a raft of price reductions as homes that didn’t sell in 2023 see their asking prices cut to attract a buyer. We started to see this in December as sellers prepared for the new year. The average home reduced last month had been on the market for 75 days, up from 64 days in November.
However, as affordability conditions improve and demand strengthens, fewer sellers will likely need to adjust their expectations in future months.
