Housing market sees ’18-month long white-knuckle ride’ come to an end

The Home Stretch podcast - Tom Bill, Head of UK Residential Research at Knight Frank discusses factors impacting the UK residential market. 

These comments come from the latest episode of The Home Stretch podcast from the Guild of Property professionals. 

In the latest episode of season three of The Home Stretch podcast CEO of The Guild of Property Professionals, Iain McKenzie, speaks to Tom Bill, Head of UK Residential Research at Knight Frank, to understand the latest developments for the sales and lettings market in London and the upper quartile, as well as the wider UK residential market. 

With Bill and his team producing a monthly house price index for the UK residential market, McKenzie was eager to ask if 2023 had panned out as expected, asking, “If you were to review your predictions from the beginning of the year, are you on track?”  

In reply, Bill says that buyers and sellers or anyone trying to remortgage have really been faced with a period of volatility. “It has been unprecedented, which of course was kicked off by the mini budget. Back in the Spring of 2022 the Bank of England started to make some pretty apocalyptic noises about the UK economy in terms of a recession, and I think what we have had in 2023 has been quite an erratic flow of economic data, particularly around inflation,” he comments. “The overall picture has been a bit of a rollercoaster ride and I think what is happening now is we are kind of pulling back into the station, the Bank of England left rates unchanged last month, they might act again, and so I think that most people are feeling shell-shocked. That volatility I think has probably exceeded our expectations and really kept a lid on sentiment and demand and so in terms of house prices, we think they will probably come off a little bit more than we thought in the beginning of this year, so probably more like 7% as opposed to 5% that we initially forecast in March.” 

McKenzie sought to understand if the market behaved differently in an inflationary environment in the upper quartile, to which Bill retorts, “the markets behave in a similar way, but not to the same extreme.” He says, “for example, when we look at when the five-year swap rate started to climb, that is the point when price growth started to get depressed in prime central London. Around half of sales inside Zone One are typically in cash, so it wasn’t a case of affordability or buyers being squeezed, but a general perception around sentiment.” 

Bill, whose career began in journalism in 2004, later moving on to become a property reporter at Bloomberg in 2010, comments that his experience of property in the media created a natural transition into research. “From a journalist perspective, what you are trying to do is create a particular story or a narrative, and certainly when you are working at somewhere like Bloomberg or Reuters, you are using data and numbers to back-up a particular story, so moving into research is a fairly well-travelled path now. In research you are building a narrative, I think a lot of what research does is storytelling and explaining ‘why’ and the context of what is going on using numbers and what is happening on a spreadsheet to do that. So, the two professions have those similarities.” 

McKenzie asked Bill if his experience helped him with the noise from the media, adding: “Do you feel more balanced as a consequence?”  

To which Bill responds, “Generally speaking, everyone has an opinion on the housing market, not just journalists. Stories about housing are very common, regular and very prevalent in the media and so there is a strong appetite to understand what is happening to house prices to gain insight into what is happening to the value of your own home. It is sometimes difficult to cut through what is going on and to look under the bonnet of what is going on in the housing market and I don’t blame the media for that.” 

Bill and his research team believe that after 14 consecutive rate hikes, sentiment should improve, and the market should begin to stabilise. To hear this conversation in full and understand the data, visit The Home Stretch podcast