Forecast for 2023 versus what happened
Here we look at the 2023 economic and property market forecasts in comparison to the actual outcomes
In 2022, the post-pandemic property market truly defied expectations.
Average property prices and rents, which were predicted to see somewhere around three to four per cent growth, went up by double digits.
And this was despite a bad global and local economy, with a cost-of-living crisis, slow GDP, negative real wage growth, high inflation and a bank rate on the rise.
But what about 2023? Well, the year saw the rental and sales markets move onto different trajectories, with average rents continuing to rise at a record-breaking rate, while house prices started to fall – although by no means as much as anticipated.
The drop in both prices and transaction numbers has been caused by a combination of the continuing high cost of living and rising mortgage rates.
For more than a decade, borrowers had become used to interest rates of just one and two per cent being available, so when the average mortgage rate shot up to almost six per cent in December last year, it was a huge shock – especially to people who were coming off low five-year fixed deals.
It has been felt that buying and moving have become more expensive, even though mortgage rates have now headed back to their long-term norm. Nevertheless, this has reduced the number of people that can afford to buy and spooked others. That’s reduced overall demand, while listings have returned to the higher levels we saw prior to the pandemic.
Let’s take a look in more detail at what was forecast for both the economy and the property market in 2023 versus what actually happened.
The table below shows that although there is some way to go to go until we have a healthy economy, the tide is turning and there are positive signs.
GDP is either showing slight growth each quarter, falls or is static; and wages have increased by significantly more than was expected.
Unemployment is lower than was forecast, and while both inflation and the bank rate are slightly higher than was predicted, it’s not by much. Compared to forecasts for 2022, the experts were much more accurate.
Economic measures
2022F
2022A
2023F
2023A
GDP
4.70%
2%
-0.30%
0.60%
Unemployment
4.30%
3.50%
4.40%
4.20%
Wages
N/A
-2.50%
-3%
7.20%
Inflation
3.10%
10.10%
7.00%
7.50%
Bank base rates
0.75%
3%
4-5%
5.25%
As for the property market, this time last year many doom-mongers were suggesting the post-pandemic boom was well and truly over and that prices could fall by 10-15% in 2023, with some even predicting 20% or more.
Rent growth was expected to drop back to ‘normal’ levels of two to three per cent growth and transactions were predicted to be lower than in 2022.
2024F
Property prices
3-4%
13.60%
-5-10%
-0.10%
-4.7-2.0%
Rents
4-5.5%
12.30%
2.5-4%
6.10%
5-6%
Transactions (mn)
1.1-1.3
1.25-1.3
850k-1mn
1mn est
1-1.04
In reality, transaction numbers have been roughly as expected, sitting lower than the long-term average at around one million for this year.
However, average prices have held up relatively well and although there is now negative growth, there certainly hasn’t been a ‘crash’.
And it’s important to bear in mind that this slight dip is against the backdrop of an excellent increase in capital values that the majority of property owners saw between 2020 and 2022, especially for those that owned a house as opposed to a flat.
Meanwhile, the rental market has remained strong, mainly thanks to the continuing imbalance between supply and demand across most of the UK.
According to ONS figures, in the 12 months to October 2023, rent growth in the private sector outstripped inflation for the first time, versus the long-term trend of rising at just below inflation:
UK as a whole: +6.1%
England: +6% (ranging from +6.8% in London to +4.7% in the North East)
Wales: +6.9%
Scotland: +6.2%
For more on what happened in 2023 and the implications for landlords, see our month-by-month round up of the year.
