2024 Housing market predictions

Hello Readers,

I can’t believe a year has passed already and that we’re able to take time to pause so as to look back at everything 2023 has brought. It’s fair to say, 2023 has been another challenging year, but how challenging has it been compared to what we thought?

At the end of December 2022, I wrote my article giving some predictions for 2023 so let’s see how those predictions turned out:

• House prices to fall by around 9% – According to the most recent report from Zoopla, house prices have dropped by an average of 1.1% (2.4% for the south east)
• Rent growth to slow to 4-5% – Rents have continued to soar, with average rates up by 9.7% for new lets
• BoE base rates to end the year around 4.25% – It’s been a challenging year, with the BoE base rate ending at 5.25%
• Mortgage rates to hover at around 5% – From reading a number of articles, mortgage rates appear to still be at around the 5% mark, with some dropping just under to 4%
• An increase in repossessions & distressed sales – We’re still waiting for the Q4 stats, but looking at July – September, we see how mortgage possession claims are up by 14%, but interestingly not back up to pre pandemic levels (however, they are steadily climbing)
• Increased opportunity for HMOs – Data for this is hard to find, however from my experience we’re definitely seeing more interest for HMOs

Well, what a mixed year it’s been! House prices haven’t been decimated, inflation is down and the BoE base rate is higher than predicted.

I foresee 2024 as being a year of two halves with the first six months being much of the same, but the second half showing brighter signs of recovery. I don’t think it will be until 2025 that we start seeing some really positive signs however.

Here are the main headlines for 2024. It will certainly be interesting to look back on these next December as we never know what’s round the corner!

Rents to rise by 5%

With an average rental increase of 9.7% for new lets, another 5% increase is quite significant. The average three-bedroom property in Medway, for example, now rents at ￡1,200 – ￡1,300 per month and a 5% increase would push this up by around ￡50 per month.

The supply and demand imbalance is still there, however it’s easing and the level of enquiries from tenants are down slightly with some asking rents being reduced. This is not my experience however, with properties and rooms generally renting easily.

House prices to drop by 2% – 4%

We saw a decrease of just over 2% for Medway this year compared to a predicted 9% drop. That’s good news for investors for sure and in 2024, I have been reading that we can expect a drop of 2% – 4% with prices starting to increase again in 2025.

With this drop, I think that the second part of 2024 could be a good time to buy as investors will benefit from lower prices than a year ago with less risk of falling into negative equity as economists are predicting more stability towards 2025.

Let’s see how this one turns out!

Bank of England base rate to start easing by the end of the year (with some predicting another 0.25% or even 0.5% rise in the spring)

This is a very interesting point as economists appear to fall into two camps. One camp being that rates are expecting to be cut in the spring/summer and the other that rates are likely to rise to 5.5% or 6% in the first half of the year.

There’s a lot of uncertainty about this one and the first 3-6 months of the year will answer this question once we see how the economy fares over the festive period.

Inflation is down more than expected which is great, but there’s uncertainty about whether it will remain on the downward trajectory over the next few months. An increase will almost certainly lead to a holding or increase of interest rates and a drop might (hopefully will) lead to a drop in interest rates.

Mortgage rates to drop to the mid 4% area by December

Mortgage rates have certainly seen their peak and I’m fairly confident about the prediction that we will be in the 4% region by the end of 2024, but as highlighted above economists appear divided about whether rates will drop as quick as we hope.

There’s an excellent article from XTB which goes into this in great detail and if you’re interested in reading more I highly recommend grabbing a cuppa and diving in.

I’ve included two illustrations from XTB below, one showing predictions based on BoE rates dropping in the first half of the year and another with rates increasing before dropping in the second half. I’ll leave you to draw your own conclusion on this one!

UK Interest Rates forecast to remain at 5.25% before falling to 5% in August 2024

UK Interest Rates forecast to increase, before dropping in March 2024

A new political climate

This one is going to be a big tone setter for property investors. We have the rental reform bill that might pass through parliament next year and with all the potential changes, we will see what actually passes.

We might also see a change in government, with a general election taking place at some point in 2024. A Labour government could see significant additional ‘anti-landlord’ legislation, so we will have to see what happens as the months pass.

Whatever your plans are for 2024, I’d like to wish you a happy year of investing!

Hasan