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UK Housing

US Housing Market Update

The anatomy of a housing market downturn

Measures of housing market activity and prices tend to follow a predictable sequence in downturns. In this Update we highlight the key US and UK variables that clients should follow to track the housing downturn and identify turning points. With most indicators already softening in both countries, it is just a matter of time before house prices fall. In view of the wider interest, we are also sending this US Housing Update to clients of our UK Housing Service.

24 June 2022

UK Housing Market Update

Withdrawal of affordability test is a wise move

We suspect that the main reason for the hasty withdrawal of the Financial Policy Committee’s mortgage affordability test is that it was on course to become a severe constraint on many buyers’ financial firepower. If left in place, it could have led to a far larger house price fall than the 5% drop we forecast.

20 June 2022

UK Housing Market Chart Book

Rising mortgage rates begin to take their toll

The rise in mortgage rates from a low of 1.5% last November to 1.8% in April is beginning to weigh on home purchase demand, with the new buyer enquiries balance of the RICS survey dropping into negative territory in May. Supply is also improving according to the survey, redressing the imbalance between strong demand and limited supply that has pushed up prices over the last two years. Indeed, the survey is now consistent with house price growth grinding to a halt by the end of the year. And given we expect mortgage rates to continue to increase to over 3.5% by mid-2023 as lenders rebuild their margins, we remain content with our view that house prices will fall by 3% next year.

20 June 2022

Our view

If we are right to forecast that the Bank of England will have to raise interest rates to 3.00% to stamp out inflation then we are on the cusp of the fastest increase in mortgage rates since the late 1980s. That caused house prices to fall by 20%. But the tight labour market, lower loan-to-value ratios, and a lower peak in interest rates means the drop in prices should be less dramatic this time. We expect house prices to fall by 5% over the next two years, reversing a fifth of the increase since the pandemic began.