UK House Prices Forecast To Rebound 5% In 2024 By Pantheon Macroeconomics

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One of the UK's most accurate economic forecasters says UK house prices look set to experience a strong rebound in 2024 as a result of falling mortgage costs and improved household balance sheets.

But, Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, says house prices will fall further from existing levels over the next six months amidst elevated interest rates.

Tombs has on various occasions been rated the top UK forecaster by Refinitiv, Bloomberg and the Sunday Times.

"We still think house prices will drop by 6% peak-to-trough, with the nadir coming in March," he says.

UK house prices actually rose in August, said the ONS, and Pantheon Macroeconomics says this confirms an ongoing resilience in the housing market, but a hit to affordability from rising interest rates has been too significant for prices not to fall materially from here.

The housing market will likely remain under pressure until the Bank of England signals a turning point for interest rates is approaching, which Pantheon sees happening in the second quarter of next year, which is two quarters earlier than markets currently expect.

Above: Further house price weakness is still to come through. Image: Pantheon Macroeconomics.

Pantheon's existing base case scenario is for the Bank to cut rates by 25bp every quarter from Q2, taking it to 4.50% by the end of next year, from 5.25% currently.

As such, the benchmark mortgage rate should drop to around 4.0% by end-2024, from 5.94% in September 2023.

This will take notable pressure off households, with Pantheon estimating the average two-earner household must now be willing to devote 29% of their income to mortgage payments at current rates, much higher than the steady 20% average over the 2010s.

Above: Households' real incomes will rebound in 2024: Pantheon Macroeconomics.

There is further good news for 2024 as UK households’ real disposable income will rise by about 1.2% in 2024, building on this year’s 2.0% increase. According to Pantheon Macroeconomics, pay growth likely will continue to outstrip CPI inflation for most of next year.

This should mean the average two-earner household will be required to devote 23% of income to mortgages by end-2024 from the current 29%.

The supply of new homes to the market is meanwhile expected to remain tight, ensuring supply fails to keep up with demand.

"We expect house prices to rise by 5% in the final three quarters of 2024, thereby reversing nearly all of the near-term decline," says Tombs.