Overall, the housing market in the UK is so strong it is literally a standard figure of speech. Nevertheless, it has been through its rough patches. There are increasing signs that the foreseeable future might be one of them.
The case for continued strength
The UK must have a general election by January 2025. It’s certainly not out of the question that one will be called early. Even if the government does stick to the schedule, it’s already getting very near to the time for early campaigning to start.
That means, realistically, the government is going to be even more motivated than usual to protect the housing market. In fact, the decision to raise the SDLT (Stamp Duty) threshold could arguably be seen as having been made with an election in mind.
It’s also worth noting that the UK still has a chronic undersupply of housing both to buy and to rent. This means that it tends to be a seller’s market. Periods of weakness, therefore, are generally due to people being unable to buy rather than unwilling to do so.
Right now, the UK’s labour market is still very strong. All things being equal, more people in work means more demand for housing. Some people will be looking to buy themselves. Others will be looking for rental property, hence landlords will be looking for property they can let out to them.
The case for weakness
There are two key reasons for being cautious about the direction of house prices in the immediate future. Both connect to inflation. The first is the fact that the housing market has enjoyed a spectacular run since the start of the SDLT holiday. The second is that inflation is eating away at the real-world purchasing power of UK adults.
What goes up doesn’t necessarily have to come down. Equally, it won’t necessarily keep going up forever, at least not at the same rate. Ever since the chancellor introduced the SLDT holiday, the UK housing market has been forging ahead at full speed.
No market can keep going at that rate forever. No matter what the conditions, sometimes markets have to stop for breath. This is generally when they’ve got so far ahead of themselves that they need to give other people time to catch up. Specifically, they need to give potential buyers time to build deposits and grow incomes to afford higher prices.
At present, the reality for many working adults is that the high demand for labour is not translating into high wages. The most likely reason for this is that employers simply can’t afford it. In short, therefore, working-age adults can be reasonably confident of being able to get a job but their effective pay could be significantly lower than they would like.
Will house prices actually drop?
Weakness in the housing market does not necessarily mean that prices will drop. It could simply mean that they’ll stay (more or less) where they are for a while. This would almost certainly be the preferred outcome for the government. It will not want significant house price falls going into an election. On the other hand, it won’t want to create a potential bubble either.
House prices standing pat does look like a very real possibility just now. The SDLT holiday encouraged a lot of people to bring forward house purchases (and sales). Most residential buyers intended to stay in their new homes for at least three to five years.
That means there’s a good chance many people who bought during the SDLT holiday will still be happy to stay where they are. Likewise, first-time buyers who bought after the end of the SDLT holiday are unlikely to be in any rush to move.
It is therefore very possible that the housing market will slow down but that prices will stay firm. Arguably, that would be a decent result for buyers, sellers and real estate professionals alike.
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