Market slowdown starting according to latest house price figures

The average house price in Wales reached a new peak of £249,076 at the end of 2022 but cost of living pressures, higher interest rates and stagnant earnings are expected to trigger a slowdown.

The figures have been released by the Principality Building Society for October to December last year and show that despite an almost double-digit price rise – 9.9 per cent - when compared to the same period the previous year, this is the weakest rise in Wales since early 2022 and points towards a more subdued outlook for 2023. 

This is echoed by a modest 1.3 per cent increase when comparing against the quarter, one of the lowest rates since early 2020 and reinforcing that the strong quarterly rate of house price inflation reported a year ago has dissipated considerably. 

Society spokesperson Shaun Middleton says: “Wales has not suffered the more extreme price volatility seen in England. Typically, the housing market was more buoyant than expected partly because of the long-term issue of the shortage of the supply of homes, combined with pent-up demand. 

“Matters have improved since the tumultuous mini budget last September, with lenders returning to the market which increased competition and modestly reduced mortgage rates. It does appear that the era of exceptionally low mortgage rates is over. Depending on trends in inflation and the actions of the Bank of England in terms of pushing up the base rate to counter that, we can expect mortgage rates to remain somewhat elevated for the foreseeable future.”

Across Wales in Q4, house prices reached new highs in 10 of the 22 local authorities but for the first time in over two years more local authorities reported quarterly price falls than increases. 

Only four local authorities reported consistent increases quarter-on-quarter through the whole of 2022 – Blaenau Gwent, Bridgend, Cardiff and Carmarthenshire. At the other extreme, Conwy posted just one quarterly increase – in the second quarter of 2022.

House prices in Anglesey have dropped by more than £50,000 from the all-time peak reported in Q3 2022. The new average price for Anglesey of £254,046 is down three per cent annually and 17.5 per cent quarterly in Q4 due to the high average rise of 15.3 per cent in Q3. Take these two quarters together and things for Anglesey are comparable with other local authorities across Wales.

Middleton continues: “Clearly, there will be a more challenging environment in 2023, with the higher cost of mortgages, rising cost-of-living pressures, plus a further fall in real earnings. These factors will contribute to a slowing market, with house prices widely predicted by analysts to drop slightly. More than 1.4m households will be coming off much lower fixed-rate loans this year and some could face a payment shock, although the stress tests which have been in place over the last ten years should mean that most mortgaged households will have the capacity to cope with the increase.”

The report estimates that there were about 12,600 transactions in Wales in Q4, up a little on the previous quarter, but about five per cent lower than Q4 2021. However, these figures may be somewhat flattered by buyers moving quickly to complete purchases while favourable mortgage deals were available.  

For the year as a whole, sales are on a par with levels in 2019, pre-Covid, but noticeably weaker than in 2021.