The damage to the UK housing market from mini-budget ripples has been significant and may take much effort to heal — judging by the severity of the collapse in 4Q confidence — despite a minor bounce in December, based on the Royal Institution of Chartered Surveyors (RICS) sentiment survey.
Key leading indicators point to realtors’ widespread views of house-price falls over three and 12 months, with views of fewer transactions almost equally common among agents, though with pessimism a little less prevalent than in October.
Estate agents also reported less interest among buyers and lower listings, with the stock of homes for sale per agent only marginally above October’s record low (since March 1978). Interestingly, the survey flagged signs of greater price resilience among properties boasting greater energy efficiency.
Iwona Hovenko, Real Estate Analyst at Bloomberg Intelligence commented: “The historically busy Spring UK house-selling period may be a reality check for the hoped-for rebound in transactions and the severity of potential house-price declines after plunging 4Q buyer confidence. There are signs of improvement, yet homebuilders Persimmon, Barratt and Taylor Wimpey probably need a much greater bounce to revive sales.
“The traditionally busy Spring selling season may be a litmus test for UK housing-market health, following the deep freeze in activity as mortgage rates surged in the aftermath of the mini-budget. Though property portal Rightmove has hinted on a tentative revival in early January (albeit below busy year-ago levels), more evidence is needed as other leading indicators don’t yet inspire much optimism. The post-mini-budget confidence shock led to sequential house-price falls in late 2022,reflected in several indexes. In the new-build segment, homebuilders also recorded slashed weekly sales rates per site in 4Q, though prices were resilient. Listing portal Zoopla has flagged rising buyer interest in urban areas, driven by jobs and the greater appeal of city living.”
Jonathan Tyce, European Banking Analyst, Bloomberg Intelligence, added: “The 1.5 percentage-point leap in the two-year swap-curve reference rate for UK banks’ mortgage pricing during Liz Truss’ short tenure as prime minister is now a distant memory, easing much of the considerable pain in the mortgage market, where offered rates had spiked to 7%. As 1.5 million households are due to refinance in 2023 (according to UK Finance), this relief is key to the economic outlook, and we note that the five-year swap has continued to ease, with the two-year swap set to dip below 4% for the first time since September. Even after receding, this jump will disproportionately affect younger generations, exacerbating the painful wealth and ownership divide. As banks steer clients toward longer-duration offers to add to visibility and lower churn, we expect UK banks’ 4Q updates to focus heavily on mortgages.”
UK homebuilders’ share-price performance implies a much more severe downturn for the country’s housing market than we believe may actually be in store in 2023. While the midpoint forecasts compiled by BI point to UK house prices declining by about 5%, markets imply a UK housing crash that could almost match the Global Financial Crisis (GFC), which in Bloomberg Intelligence’s view may be too pessimistic. This is because of the much-improved lending discipline post-GFC, which has enabled only the most financially sound households to buy a home, bolstering resilience and reducing the risk of forced sales. The significant prevalence of fixed-rate mortgages also gives borrowers time to prepare for higher interest costs, while rates have also started to come down vs. late 2022 highs.
