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16/11/2022

JLL 5 year forecast - UK and regions

 
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With high inflation, rising energy costs and the end of cheap money, it seems inevitable that house prices will fall next year. However, JLL says there will be a correction, not a crash.

Since interest rates were slashed in the wake of the 2008 financial crisis, the UK has seen house prices rise to record levels year after year. That is now ending, at least for the time being. The most bearish of forecasters have spoken in terms of price falls of 20% to 30%, though most industry professionals and mainstream economists are predicting between 5% and 12%. Here is JLL's take -

UK house price growth 2023 to 2027

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Source: JLL Research

Year-on-year house price falls are rare. The two most recent were in the early 1990s when they dropped by 20% - the biggest fall ever recorded - and in 2008-9, when they fell by 15%. JLL point out that today's conditions are very different to both of those.

In the early 90s, inflation was high, like today, and GDP low, also like today. However, a key difference is that in the 90s, unemployment stood at 10%. Currently it is at 3.5% and expected to rise to 4.9% by mid-2024, below the average unemployment rate of 5.2% over the last 10 years.

The 2008 fall in house prices was the direct result of a banking crash caused by reckless lending over a prolonged period. When the day of reckoning finally arrived, banks froze, lending stopped, transactions fell to an all time low and prices fell. Since then, lending criteria have tightened considerably and both the banks and the housing market are on a more sustainable footing.

New housing supply will also tighten. The major housebuilders will do what they always do in a recession. Stop building. JLL expect housing completions to drop from a high of 240,000 in 2021 to 165,000 in 2023 and 2024. Two major housebuilders have already announced cut backs in land purchases and Capital Economics warns that new starts could be as low as 110,000 by 2024. This lack of new supply will support to house prices over the medium term. 


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