Demand for homes has rebounded in the first few weeks of 2023, but remains well below January 2020-2022 levels, according to Zoopla’s house price index.
However, the online platform’s latest data shows current buyer interest is in line with the pre-pandemic years and 10% ahead of 2019.
“It’s going to be a slow start to 2023, but we expect demand to pick up in the coming months as the economic outlook becomes clearer and mortgage rates settle around 4% to 4.5%,” said Zoopla executive director, research, Richard Donnell.
Higher mortgage rates and living costs as well as weak consumer confidence had brought activity levels back to normal, the firm said. Zoopla added that the past three years had been exceptional, with the pandemic reshaping how households think about housing, which has driven an increase in moves.
Zoopla found that demand and sales agreed were holding up in the North East, Scotland and Wales, where home values are below the national average. Market conditions remain weaker in the South East, South West and the East Midlands, where prices are higher or have grown rapidly over the past two years, exacerbating affordability pressures.
House price growth stalled in Q4 2022 in response to a 50% drop in buyer demand in the final months of 2022, which Zoopla said would feed into a rapid slowdown in the annual rate of price growth in coming months.
At the end of 2022, UK house price inflation slowed to 6.5%, from 8.3% at the end of 2021 - a trend seen across all regions except London.
Most areas recorded small price falls in Q4 2022, while discounts to asking prices to achieve sales widened quickly at the end of 2022. However, Zoopla said this gap between asking and achieved prices was now holding at 3% to 4% and there was no sign of the gap widening.
Zoopla said this was important because if the gap widens, sellers will feel under increasing pressure to reduce asking prices, putting further downward pressure on headline prices.
Zoopla added: “The start of 2023 will be more of a slow burn than in recent years. A portion of households hoping to move in the coming year will be waiting to see whether house prices start to fall more quickly in Q1, as well as how much further mortgage rates are likely to fall back.
“Mortgage rates for new business are now generally below 5% and look set to remain in the 4% to 5% range in 2023. This is a much better prospect than the 6% to 6.5% levels at the end of last year, but buyers will remain cautious in the next few weeks.”