PoundSterlingLIVE - Analysis from a leading European bank predicts UK house prices should enter a recovery trend from the first quarter of 2024.
According to Berenberg, house prices may fall further in early 2024, but broad activity could bottom before the turn of the year.
"At the start of the year, we projected that house prices would fall by 10% from peak to trough in nominal terms as surging mortgage costs and the gas-price driven shock to real incomes squeezed demand," says Kallum Pickering, Senior Economist at Berenberg in London. "The closely-watched Royal Institution of Chartered Surveyors (RICS) survey suggests that the peak-to-trough fall could be close to our call."
Berenberg notes house prices have fallen by about 5% from their peak in mid-2022, but in real terms (accounting for inflation), the fall is larger.
The analysis finds that real prices are down 11%, with a likely real peak-to-trough fall ending up at around 15-17%.
Incoming surveys suggest things are getting "less bad" for the market, according to Berenberg, and the surge in mortgage rates during the past year has likely ended now that the Bank of England has completed its rate hike cycle.
"Because c90% of the mortgage market is on fixed-rate contracts, which are priced against prospective money market rates, mortgage conditions can ease on the mere expectation that the BoE will cut rates," says Pickering.
Berenberg looks for mortgage conditions to ease in the first quarter of 2024 as markets adjust for a series of Bank of England rate cuts from Q2 2024 onwards.
Constrained housing supply, meanwhile, suggests that it won't take much of an improvement in demand to put upward pressure on housing once more.
"Due to a structural supply shortage in the UK housing market, there is little excess stock that requires a large price correction to clear," says Pickering.
"This has helped to contain any serious downside risk during the price correction. Recent as well as future price developments thus largely hinge on demand-side developments. We look for a strengthening economy through 2024 and rising real purchasing power to lift housing demand in H2 2024 and beyond," he adds.
An original version of this article can be viewed at Pound Sterling Live