Whatās Going On Here?Data out on Thursday showed that UK house prices fell more sharply than expected last month. What Does This Mean?Itās not a cheap time to be buying a house right now: with inflation raging and interest rates on a steep upward climb, the average rate for new mortgages in the UK is now clocking in above 3%, the highest since 2014. So, with homebuyers no longer so gung-ho about finding their dream crib, sellers have little choice but to cut prices to garner interest. In fact, itās estimated that a tenth of homes on the market have been discounted by 5% or more since September. All said then, the average house price fell 1.4% to Ā£263,788 ($319,120) in November ā the sharpest drop since Covid was laying waste to the property market back in June 2020. Why Should I Care?For markets: Sorry, sellers.
After October's dropoff, this is starting to look like a trend ā one that economists reckon could see house prices fall nearly 10% in the next year. Things are set to get tighter, after all: for one, most British mortgage holders are on a fixed rate, so they still havenāt felt the full impact of higher rates ā which could double payments next year. And for another, spare cash is going to be in even shorter supply as government support wanes and unemployment increases in the coming months.
The bigger picture: Donāt start partying.
Falling house prices might sound good to wannabe buyers, but theyāre actually bad news for the wider economy. See, about a third of household wealth is tied up in home values ā so consumer spending, a key driver of the economy, will likely dip further as prices decline. Thatās not to mention the effect on the wider housing industry, which makes up a fair chunk of the British economy too: the UKās biggest homebuilders, from Persimmon to Taylor Wimpey, have all warned of tough times ahead in recent weeks. | 