Bloomberg Intelligence’s latest Housing Pulse, looking at February 2023, has found that weak (or even negative) house-price growth – combined with robust nominal personal-income gains – could help improve housing affordability and possibly inject some life into the housing market once sentiment stabilizes, and likely to be especially true if the recent moderation in mortgage rates continues. A solid jobs market, and a resilient economy amid easing inflation and mortgage rates will nevertheless be key to any recovery.
Iwona Hovenko, Real Estate Analyst at Bloomberg Intelligence comments: “Improving UK housing activity vs. a dire 4Q is clear from many indicators and encouraging for the largest developers – Taylor Wimpey, Persimmon, Bellway and Barratt – which recorded similar positive trends. The revival is far below the frenzy in most of 2022, yet activities near 2017-19 levels, with higher rate expectations a risk to prospects.”
Gloom Tempers From 4Q Lows, But Will It Continue?
UK housing sentiment remains firmly negative across all of the RICS indicators we’re monitoring, yet points to some improvement amid less-widespread pessimism about the outlook. The broader decline in new-buyer enquiries nevertheless implies a muted spring housing-market to come. Similar trends have been noted by UK homebuilders – including Taylor Wimpey, Persimmon and Barratt – which have also recorded a rebound in sales vs. 4Q, albeit far below those of early 2022.
The risk remains that even the anemic housing-activity recovery in spring – usually one of the peak times for property-market momentum – could weaken later in the year, absent a meaningful positive catalyst such as a rosier economic backdrop or lower mortgage rates.
Up? Down? Sideways? Well, It Depends
Though UK housing-market activity is sharply lower vs. early 2022, crucially it’s shown an improvement in recent weeks, with demand, supply and sales agreed near 2017-19 levels (based on data from the largest property portals Rightmove and Zoopla). This affords cautious optimism that the most gloomy housing-market predictions may not materialize. That said, house prices may yet have to find a trough, with Zoopla highlighting that discounts to asking prices have widened to 4.5%,the largest in five years.
Rightmove has seen a strong recovery in first-time buyer demand, potentially driven by their desire to stop renting amid the high prices charged and hefty competition. Meanwhile, Zoopla flagged London sales up 4% vs. prior to the pandemic, ahead of most of the country. That nevertheless follows underperformance since 2016.
Bad Housing Omen Is 50-Bp Higher Peak 2023 Rate View
Red flags for UK-housing prospects are rising Bank of England (BOE) peak-rate expectations, and increasing swap rates – all up about 50 bps in a month. Easing expectations in early February had boosted optimism that mortgage rates could keep falling in 2023 as inflation decelerated. Yet the latest pickup in forecasts implies this is no longer assured, and improvements in consumer sentiment and housing activity could take longer.
The robust jobs market, better-than-forecast economy and international backdrop may have all pushed up the peak-rate view. Elevated predictions have even triggered a pushback from the BOE Governor Andrew Bailey, trying to tame views. Upcoming jobs and inflation data – as well as the UK Budget announcement – will be critical to the BOE’s March 23 decision and outlook.