The latest (June 2022) UK House Price Index from Zoopla has revealed that house price growth and sales volumes are proving more resilient than many might have expected given the increases in the cost of living and initial increase in mortgage rates.
Zoopla reported: ‘The housing market is not immune to these growing economic headwinds but there are good reasons why market activity has been holding up. We expect demand for homes to weaken later in the year, but we are revising up our forecasts for house price growth and sales volumes for 2022.
‘Average house prices are up 8.3% over the last 12 months, lower than the recent high of 9.6% in March 2022. Around the country, prices are rising fastest in Wales (11.1%) and remain in double digits in the South West and East Midlands. London continues to lag well behind with average prices up 4% over the last year. All markets are registering slower growth off a high base. The rate of price increases remains well ahead of the 5-year average. We expect the rate of growth to slow over the second half of the year, but not as fast as we had projected at the end of last year due to the continued resilience in sales and buyer interest.’
Pandemic impacts continue to stimulate home moves
Zoopla’s latest data shows demand for homes remains 25% above the average over the last five years. Buyer interest has slowed over recent months from high levels registered in the Spring, but levels of demand remain on a par with this time last year. The headwinds facing consumers will be starting to squeeze some people out of the market, but this is being offset by those with a continued desire to move. There are several factors at play, largely pandemic related.
Pandemic factors continue to influence housing market activity and greater flexibility in the labour market is stimulating more home moves. A recent consumer survey by Zoopla found a strong link between increased expectations of working from home and the scale of the eagerness to move in the next 12 months.
Those who expect to work at home more are 5x as likely to move than those that expect no changes in working patterns. Around a third of the workforce has the ability to work with more flexibility. Furthermore, a recent report from the Office for National Statistics found that levels of homeworking more than doubled during the pandemic with an additional 5m homeworkers, taking the total to 9.7m. Only a small proportion of these homeworkers need to move in order to support overall sales volumes. In addition, these changes may support first time buyers who, rather than waiting to save up a bigger deposit in order to live close to work in a higher value area, could potentially buy sooner by purchasing further afield in an area offering better value for money.
Older workers leaving the labour market
Another impact of the pandemic has been over half a million older workers (50-70 year olds) leaving the labour market and becoming economically inactive. Retirement is the biggest driver and one important life-stage trigger for home moving decisions. Some older homeowners with excess space are retiring or might also be additionally motivated to move by concerns over the cost of living and running costs of their current home. This could apply to other types of households as well.
Zoopla stated: ‘These pandemic factors explain why sales and price growth have remained more resilient than we might otherwise expect given the economic headlines. If we didn’t have them then the market would be slowing far more quickly than it is currently. The net result of these trends is that we expect housing sales to outperform our original forecasts for 2022. Year to date sales agreed are only 10% lower than this time last year, and even allowing for a slower H2 we expect overall housing sales to total 1.3m this year. That is 100,000 (8%) higher than the 1.2m we projected at the start of the year.’
Resilience of buyer demand more varied at a local level
The report added that buyer interest remains weak in the most unaffordable markets, primarily parts of London where the impacts of the pandemic have shifted the profile of housing demand and price growth remains well below average.
In contrast, there are markets where sales demand remains strong and well above average, despite increases in the costs of living and mortgages. These are typically more affordable cities or markets well connected to large cities, or a combination of the two. These areas are all registering above average levels of house price growth driven by more attractive affordability levels.
The firm concluded: ‘We expect house price growth to continue to slow over the remainder of 2022 but at a slower rate than we originally expected. With average house prices already having grown 3.6% over the first half of the year, we expect them to increase further ending the year 5% higher.’