Most leading indicators of housing market activity and house prices remain strikingly buoyant, but the first signs that demand will soften are now appearing. There is no question that house prices will continue to rise apace over the next few months. Buyer demand remains strong and signs that supply has begun to improve have translated into higher sales volumes rather than any moderation in prices. But it typically takes six to nine months for interest rate hikes to start to weigh on the housing market and some early signs of waning demand are now materialising. Web searches for homes for sale slipped to their lowest level since June 2020 in March, and consumer confidence took a big hit in February even before Russia invaded Ukraine. We expect rising mortgage rates and the squeeze on real incomes to cause house price growth to slow from over 10% y/y now to around 5% by year-end and 2% in 2023.
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