30 June 2023
Commenting on the latest government figures for residential and non-residential property transactions (over the value of £40,000) in May 2023:
Stacy Eden, partner and head of Real Estate at RSM UK, said: ‘Residential property transactions in May 2023 decreased by 27% on May 2022 to 805,000 and are approximately 20% lower than pre-pandemic levels. This highlights the slowdown in the residential market and that the housing market is softening rapidly due to inflation, flat GDP and rising interest rates taking their toll on purchasers.
‘Non-residential transactions also slowed in May 2023, falling by 16% from May 2022, and are about 10% lower than pre-pandemic levels, reinforcing the effect of high interest rates on the commercial real estate sector.’
He added: ‘Looking at the bigger picture, residential and non-residential transactions are rapidly slowing, driven by interest rates of 5% and the difficulty in financing real estate transactions. House prices have already fallen by 5% since their peak in Autumn 2022 and probably have another 5% to fall which, with high inflation, is quite significant.
‘The income-to-house price ratio has fallen from about 8.5 to 7.5 over the last six months in the residential sector. However, there will be no significant correction due to the chronic shortage of housing stock. As regards commercial real estate, we have already seen a significant correction in most commercial sectors, and there will be a bit more pain to come given the recent rise in interest rates and the stubbornness of inflation.
'The fall in residential transactions is not just a monthly blip; total residential transactions for April and May are about 160,000 against a long-term pre-pandemic average of 200,000. This highlights the difficulty of first-time buyers getting onto the housing ladder given the reducing liquidity in the mortgage market. It is also having significant effects on society with, for instance, rent rises driven by the high demand from tenants and a fall in the number of rental properties, ultimately leading to people and families moving further and further out of cities.’