Residential property transactions down 15% on normal levels

Commenting on the latest government figures for residential and non-residential property transactions (over the value of £40,000) in June 2023: 

Stacy Eden, partner and head of Real Estate at RSM UK: ‘Residential property transactions for the quarter to June 2023 are close to 25% less than last year and at least 15% down on the normal level of residential transactions. This highlights the ongoing and medium-term slowdown in the residential market and demonstrates that the housing market is softening rapidly due to inflation, flat GDP and rising interest rates taking its toll on purchasers. House prices are effectively falling 10% in real terms.’

‘Non-residential transactions are also slowing with them being 10% below last year and the pre-pandemic norm for the quarter, reinforcing the effect of high interest rates and financing challenges on the commercial real estate sector.’

He added: ‘Looking at the bigger picture, residential and non-residential transactions are at a lower level than previous years, driven by interest rates of 5.25% 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 significant.’

‘The income-to-house price ratio has fallen from about 8.5 to close to 7 over the last six months in the residential sector. However, there will be no significant correction due to the chronic shortage of housing stock, which is proving very painful for tenants with rent rising significantly as demand outstrips supply driving families to move further out of cities, particularly London. With regards to 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.’

‘We would expect transactions to continue to be deflated, particularly in the residential market, until there is more availability of financing and interest rates reach their peak. There are of course opportunities for buyers in the commercial and residential sector as sellers lower their expectations due to the current economic environment.’