It goes without saying that the last few years have been somewhat unusual when it comes to house prices, a trend that is set to continue into 2024.
Whilst this is not the story across the country, for Chorlton estate agents, the average house price continues to rise, albeit at a more tentative rate than was seen in 2020 and 2021.
This often and invariably leads people to ask some very important questions about why house prices rise and fall in the first place, especially since the often oversimplified idea of supply and demand fails to cover the complexities of the market.
There are an incalculable number of factors that affect the housing market in one way or another, sometimes involving seemingly unrelated markets on the other side of the world. However, three factors have the most potent effect on the market.
Mortgage Rates
As was seen with the September 2022 fiscal event, mortgage rates have a huge and critical effect on house prices, because of their consequent effect on affordability criteria, often capped at 4.5 times a buyer’s annual income.
Whilst this can obviously vary, the tipping point for a typical borrower (classified as a 25 per cent deposit five-year fixed mortgage) is five per cent; higher tends to precipitate price drops for houses whilst lower tends to facilitate price rises.
Unemployment Rates
There are a few core metrics that are used as a barometer for the economy as a whole, but one of the most commonly cited is the unemployment rate because a common requirement to have or pay a mortgage is to be employed.
If someone loses their job, they are more likely to need to sell or default on their mortgage, which in either case adds more supply to the market, whilst fewer unemployed increase demand as people move to be closer to their place of work.
Government Policy
Housing policy, changes to tax, the introduction of mortgage schemes that make it easier for people to buy and policies to increase the supply of homes in general can all affect supply and demand in various ways.
