As the weather warms up, the real estate market cools down

As temperatures rise in the UK and potentially reach record highs, there are signs that the property market is cooling, giving many buyers hope for a more balanced market.

According to new figures published by Halifax, the number of people moving in the first half of 2022 fell by 35% compared to the same period last year. While in the first six months of 2021 266,270 people moved, in the same period this year only 172,510 did, showing that the real estate market is cooling.

While in 2021 56% of home purchases were made by home movers, people who sell their house to move into a new one, this year this figure has dropped from 9% to 47%. An indication that the real estate market is cooling.

Cost of living crisis bites

We’ve been predicting this for a while, but it seems that the cost of living crisis is finally having an impact on the housing market. Soaring prices, rising council tax and national insurance, rising energy and water bills and ever-rising inflation and rising mortgage rates are ultimately having an effect on the real estate market.

While last year’s stamp duty holiday led to a 133% increase in movers between 2020 and 2021, the cost of living crisis is now on pause. And while the number of movers is down significantly from last year, it’s still above pre-pandemic levels.

One of the reasons people are still keen to move is rising mortgage rates. With interest rates at 1.25% at the moment, but set to rise further to combat rising inflation, many people want to move before they can no longer afford a mortgage.

Data from Halifax shows people now need a 33% down payment to buy a new home, meaning they have to contribute £134,108 for their new home. In 2017, people only needed £98,219.

All of this should reduce demand over the next few months, bringing the real estate market back to a more balanced level.

Demand is expected to return to more normal levels in the second half of the year due to rising costs of living and affordability concerns, but the prospect of further interest rate hikes could prompt some to act now to lock in a longer fixed-term mortgage. assess.

Tim Bannister, Director of Real Estate Science at Rightmove

Prices continue to rise

This rush ensures that demand remains high, even though it has fallen from the highs of 2021. But it does mean that prices continue to rise, albeit at a slower pace than in previous months, showing that the market real estate is cooling, albeit slowly.

Over the past month, average house prices have risen 0.4% to a record high of £396,968. This prompted Rightmove to revise its annual house price growth for this year from 5% to 7%.

The race to buy a home before mortgage rates made a mortgage unaffordable has kept demand 26% above pre-pandemic levels. However, demand is 7% lower than in June 2021.

And at the same time, supply levels have started to rise, which is why the real estate market is cooling. With 13% more sellers than last year, inventory levels are starting to improve. Even though stock levels are still 40% lower than they were in 2019.

The increase in housing stock coming onto the market will be a welcome sight for buyers, who have had to contend with a seller’s market for so long.

After such a wild and fast market over the past two years, the signs are clear that the housing market is returning to more “normal” levels.

And while in June 60% of properties were SSTC within 30 days of going on the market, summer is traditionally a slower time for the property market, with children out of school and the holiday season approaching.

Summer will help the real estate market cool down

This is also normally the time when more homes are available for purchase, which will help rebalance the market, leading to a more manageable housing market for buyers.

Another sign of cooling in the real estate market is the slight drop in sellers’ confidence. While in May 82% were confident they would close a sale within three months, that number has dropped to 81%.

Only a slight drop, but it shows that the market is on its way to becoming more buyer-friendly again.

And even if it will take a few months to take effect, the cost of living crisis and the rise in mortgage rates will all contribute to the cooling of the real estate market.

The challenges posed by rising interest rates and the cost of living will no doubt have an effect throughout the second half of the year, as some people reconsider what they can afford.

Tim Bannister, Director of Real Estate Science at Rightmove

Penny D. Jackson