Will property prices fall in 2023? Estate agent Knight Frank reveal their five year prediction
Estate agents Knight Frank have revealed in their five-year house price forecast that we can expect house prices to continue to increase in 2022 and 2023, but at a much slower rate than the record-breaking numbers at the start of this year.
House prices have steadily been climbing since the housing market reopened in 2020. Earlier this month Halifax reported that house prices were rising at the fastest rate since 2007 with the annual rate of price growth reaching an annual growth of 11 per cent in March, the highest level seen since mid-2007.
However, in their house price forecast released this morning, Knight Frank revealed that it expects house price growth to start to slow to 5 per cent growth this year and slow to 1 per cent growth in 2023 as the impact of the cost of living is felt.
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Knight Frank house price forecast
‘The UK property market has defied gravity over the course of the pandemic. Tight supply, low-interest rates, accumulated household wealth, and a desire for more space and greenery have conspired to produce double-digit house price growth over the last year,’ explains Tom Bill, Head of UK Residential Research at Knight Frank. ‘We believe that 2022 is when this begins to unwind, and growth returns to single digits.’
‘We forecast that UK prices will grow by 5 per cent this year, with several factors acting as a drag on the rampant growth that has taken place in recent months despite the end of the stamp duty holiday last September.
‘First, mortgage rates will continue to rise alongside interest rates,’ he explains. ‘The Ukraine conflict may slow the pace of this normalisation, but the Bank of England will be under pressure to respond to inflationary pressures in the short term and the UK’s economic recovery in the longer term.’
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However, the biggest factor that is expected to have an impact is the increase in house supply. ‘The supply shortage has been the single biggest cause of strong house price growth and early signs this spring suggest stock levels are building’ he adds.
Rightmove reveals that it is expecting a similar slowing down of house price growth in the second half of 2022. ‘There are headwinds that seem likely to remove the current market froth in the second half of the year,’ explains Tim Bannister, Rightmove’s Director of Property Data. ‘We’ve just seen interest rates rise again, and there are further incremental increases forecast for the year which will raise mortgage rates for some. Inflation and cost of living increases are also likely to affect buyer affordability and market sentiment.’
Will property prices fall in 2023?
But what does this mean for house prices in 2023? Knight Frank predicts that house prices will continue to increase, however at a much slower rate, revealing that although the ‘race for space’ might have calmed down, after successive lockdowns it will still be a driving force for buyers.
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‘For many people, the post-Covid work-life balance is far from set in stone and demand will still be fuelled by a desire to improve living arrangements after successive lockdowns, in many cases enabled by the accumulation of household wealth and the fact many sectors of the economy have performed well during the pandemic,’ says Tom Bill. ‘However, we believe the cost-of-living squeeze will bite harder in 2023, and we expect house prices to climb by 1% before starting to slowly pick up again.’
House prices are not showing any signs of dipping over the next five years, although the price growth is expected to slow. Overall, Knight Frank predicts to we will see a cumulative house price increase of 13.6 per cent over the next five years.
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