First of all, let’s round off the 2022 Scottish property market.
In late 2022, the UK property market began to show signs of cooling, with property price growth slowing in many areas compared to the sharp rise in house prices in early 2022. This doesn’t necessarily mean that house prices have decreased, but rather that the rate of house price rise growth has slowed down.
Amidst the mortgage chaos in late September and October, there are some positive developments for buyers who are able to secure a mortgage and afford the repayments at the new, higher available rates. As reported by our Purchasing Team who advises and places offers on new homes for dozens of clients every month, competition among buyers has decreased. The team has reported that there are considerably fewer Closing Dates being set on properties. Within our own estate agency department, we are handling fewer offers but selling similar numbers of properties compared to the period before the October “shock”. More properties are moving to a “Fixed Price” or even “Offers in the Region Of”. This reduction in competition is resulting in a drop in the percentage that is over the Home Report valuation that many properties are achieving. However, we are still seeing house prices on average achieving more than the Home Report valuation.
So what do the effects of the housing market in 2022 mean for us moving into 2023?
Looking ahead to 2023, this could be viewed as a return to a healthier property market in Scotland. Many analysts in 2019 predicted that property prices would experience a “correction” in 2020, as the market had seen several years of strong growth and the cycle was due to end. However, the Coronavirus pandemic and the resulting injection of Government money into the economy had the opposite effect on the property market, leading to a couple more years of strong price growth. Now, we are seeing a return to a market where sellers set an asking price and buyers have more certainty that, if they offer that price, they will secure the property. This should, in turn, give such potential buyers who have a property to sell more confidence to put their properties on the market whilst they are looking for their ideal home.
Conventional wisdom suggests that sellers should first agree on the sale of their existing property and then buy a new one. However, due to the lack of certainty about buyers’ abilities to secure their onward purchase, we have seen several years of people buying properties “Subject to Sale” of their existing property. This causes chains to form, transactions to fall through and less supply of new stock to the market.
Many people who are already feeling the cost of living crisis pressures will come to the end of their current mortgage deal in 2023. The available rates in 2023 for these people will not come close to the rates that they have enjoyed to date. Unfortunately, this means that some people who had no intention of moving home might find themselves in a position of having to move. Whilst this is bad news for such sellers, it’s good news for the market in general as more stock comes to the market to meet the strong demand from buyers and levels of demand for properties in general.
Will the property market crash in 2023?
Opposite to the financial crisis scaremongering you might have heard, it is unlikely that property prices will crash, but there may be a reduction in the percentage over the Home Report valuation that buyers have been paying in recent years, which may give the impression of average prices of property falling. I would expect this to be as much as 6 per cent. However, this is a drop from a historic high, with prices having risen by about 20% in the two years since the Covid pandemic started. Very few sellers, in reality, will experience their property being worth less when they come to sell it than when they bought it.
These market conditions are likely to be our “new normal” for the coming few years. Market interest rates currently available, whilst considerably higher than they were in early 2022, are comparable to rates available before the banking and economic crash of 2008/09.
So, what does all of that mean in short for the 2023 market?
In summary, I expect to see more properties coming to the market in 2023 than in 2022, for house prices to “soften” a bit and for more buyers to be able, more easily, to secure a new property. However, the number of people who are going to be able to afford the living costs such as increased mortgage rates and energy prices available in 2023 will be limited. This means that while the market may be healthier overall, it may still be challenging for some buyers to enter the market such as first-time buyers/borrowers. Overall, it’s important to keep in mind that the property market is cyclical and while this may be a period of cooling, it does not necessarily indicate a crash or a prolonged downturn.
John’s final notes on his 2023 property market predictions.
In conclusion, the Scottish property market in 2023 is expected to return to a healthier state with a decrease in competition among buyers, resulting in a reduction in the percentage above the Home Report valuation. Despite some market adjustments, there is no indication of a crash in the average price of a property, but rather a reduction of around 6% from the historic high. John Cox of Cox & Co predicts a return to a market with more certainty and confidence for both buyers and sellers.