Michela Morizzo warns of UK recession after drop in CCI
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Prices have fallen for the first month on record according to Rightmove, as well as Halifax. Rightmove held the average price of a UK property dropped by 1.3 percent, or £4,795, to £365,173 in August. The Halifax House Price Index held house prices fell by 0.1 percent in July, for a £365 month-on-month fall. Experts have now told Express.co.uk the housing market is reacting to sky-high inflation and interest rates, amid fears of a recession.
Inflation also hit a 40 year high of 10.1 percent annually, according to the Office for National Statistics’ (ONS) estimates on Wednesday, above a consensus forecast of 9.8 percent and up from 9.4 percent in June.
In addition, UK GDP contracted by 0.2 percent in the second quarter, as Bank of England economists expect the UK will plunge into a 15-month recession.
The economy is predicted to enter recession, defined as two quarters, or six months, of economic decline, in the last three months of this year and into 2023.
Earlier in August, base interest rates were hiked by 0.5 percentage points to 1.75 percent by the Bank of England.
Chris Hodgkinson, House Buyer Bureau managing director, explained to Express.co.uk that a “recession dampens consumer confidence, even amongst those who aren’t directly impacted, for example through unemployment”.
He added: “This higher propensity to tighten the purse strings is especially prevalent when it comes to high-cost purchases and very little costs more than climbing the property ladder.
“As a result, many first-time buyers, in particular, will choose to sit tight until a period of recession has blown over and this leads to a reduced level of market activity.
“With fewer buyers fighting it out for the stock available on the market, the rate of house price growth will start to cool and this can ultimately lead to a drop in property values.”
Mr Hodgkinson also explained there would be a lack of movement among “second and third-rung buyers” should a recession occur.
He said: “Many second and third-rung buyers will choose to stay put in their current property for the short to mid-term.
“These are the buyers who usually drive house price growth to the greatest extent as they are purchasing larger homes at a higher price point. Again, this lack of activity will ultimately drop the average property value.
“Finally, those buyers who do brave the market will do so with a far greater degree of caution and will avoid the temptation to borrow above and beyond their means.
“This means that those looking to sell may have to adjust their price expectations to secure a buyer at a slightly lower price point and, again, this lowers the topline average property value.”
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Sean Keyes, managing director at civil and structural engineering firm Sutcliffe, also spoke to Express.co.uk about the latest figures.
He told Express.co.uk: “Historically a recession comes after two-quarters of negative growth, with this resulting in some growth, but also the slowing down of competitiveness, which means prices, especially in the North won’t increase or decrease to the rate previously expected.
“I’m not anticipating a huge decrease in house prices, but I’m also not expecting an increase, which in return will create a static price structure across the board.
“Having said that, if inflation runs at 10 percent which has been discussed, we may get general inflation, which could see a rise in salaries and then the price of properties rising, with people being above to afford more expensive housing.
“For the construction sector as a whole, a recession may also make some projects more viable and give them a push forward in the right direction, especially if material prices drop.
“I can see a recession bringing a more competitive marketplace and I can see the construction sector continuing to grow no matter what!”
It comes as house price growth dropped by one of its biggest ever levels.
While average wages rose 4.7 percent between April and June, the ONS added the “real value” of pay fell by 3 percent.
Average rates on a two-year and five-year fixed mortgage were up by 0.4 and 0.52 percent respectively in July, according to the research company Moneyfacts.
Inflation also hit a 40 year high of 10.1 percent annually, according to ONS estimates on Wednesday, above a consensus forecast of 9.8 percent and up from 9.4 percent in June.
The Bank of England expects inflation to top out at 13.3 percent in October, while energy bills are set to surge up to £3,523 on October 1 according to Investec.
As a result of surges in the average cost of living and mortgage rates, as well as plunges in “real value” wages, house price growth slowed from 12.8 percent to 7.8 percent between May and June, in one of the biggest monthly drops in annual growth ever recorded by the ONS.
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