The housing market has confounded all expectations and forecasts over the last 18 months. The level of confidence has exceeded even the most optimistic of forecasters.
Back in the Autumn of 2020, such were the challenges that we could not have envisaged the extraordinary demand for relocation seen this year. At that time the UK was in the depths of economic crisis, with a Brexit trade deal yet to be agreed – and no Covid-19 vaccines.
But there has been a huge attitudinal change towards property which cannot be attributed entirely to the stamp duty holiday. Coupled with a stronger economic recovery, this is primarily why price growth has turned out to be higher than we forecast a year ago.
People now place a higher value on their homes, having spent more time there. Flexible and remote working, which seem set to continue, have encouraged households to move to larger properties further afield. On average, buyers are moving 0.8 miles or 29% further than in 2019. As a result, more homes are likely to have been sold in 2021 than in any year since 2007, the market’s pre-financial crisis peak.
The performance of the rental market has also been far stronger than anyone could have foreseen. Rental growth in six of Great Britain’s eleven regions is rising at the fastest rate for a decade.
Wealthier homeowners have dominated activity across both sales and lettings, to date. But we expect a second wave of lockdown-induced demand in 2022 from those who have been unable to move this year. Interest rates are set to hit rock bottom, which should help first-time buyers.
We forecast that the average house price at the end of the year will be 4.5% higher than in Q4 2020. In 2022, demand should keep price growth above pre-pandemic levels at 3.5%, slowing to 3.0% in 2023 as the economic recovery loses some momentum. By 2024, the average price could be 13.5% higher than today.
Over that period, the North East is set to lead the field, with Scotland in second place. London has been the weakest performing region in 2021 and we expect this to persist. We forecast that prices in the capital will end the year 1.5% higher than in Q4 2020, with 1.0% growth in 2022 and 1.5% in 2023. In 2024, London should begin to outperform the regions once again.
As London begins to pick up pace, 2024 will likely mark the end of the current house price cycle. With house prices across the regions set to be more spread out than at the end of previous cycles, this North-South divide will determine the pattern of future performance beyond the forecast period.
While in the past, the start of a new cycle has been synonymous with a sharp price correction, it’s unlikely that we’ll see history repeat itself this time. Instead, we’re more likely to see modest house price rises across all the regions.
