What Will Happen to the Southampton Property Market in 2023?

The autumn of 2022 saw economic and political instability with the resignation of Boris Johnson as Prime Minister and the ill-fated Liz Truss 44-day premiership. Now as we go into 2023, the economic and political turmoil has subdued, offering a greater feeling of stability in money markets.

So, on the back of that, what is the expectation for the British (and Southampton) housing market as we go into the new year?

The biggest issue is inflation. Low steady inflation of around 2% a year is good for the economy, yet the high levels we are experiencing now isn’t. It affects the spending power of the pound in your pocket, and it alters the way people spend their money (including buying and selling property).

So where has this inflation come from?

Many blame it on inflated gas prices because of the Ukraine issue (however, it is believed by most economists only around 4% of the current 10.7% inflation figure is because of the fuel crisis).

UK inflation was already running at 6.2% when the Russian tanks rolled into Ukraine in February 2022 which created that energy price shock. Therefore, where has the rest of the inflation come from?

The catalyst of inflation started in 2020 with the Bank of England’s Quantitative Easing (QE). This pumped £450m new money into the economy at a time when the future looked bleak. The problem was, people had nothing to spend that money on, so when things started to get going after the lockdowns, there was a mis-match of too much demand for goods (as people had that money) and a lack of goods and services (because there wasn’t enough supply of those goods and services with the supply chain issues).

This all meant prices went up (i.e., inflation). The catalyst of this inflation was the Bank of England printed too much money in 2020 with QE and the supply chain issues (all easy to say with hindsight!).

 

Too much inflation is bad for the economy and therefore, ultimately the property market.

 

Two things will reduce inflation.

One is a recession and the other is increased interest rates.

Many find it fascinating that the Bank of England were talking the UK economy into a shallow recession in the autumn. Yet there was method in their madness. It was because they didn’t want to rely solely on the second method of increasing interest rates.

Better for the economy to have a shallow mild recession and interest rates rising to say 4.5% by the middle of 2023 to reduce inflation, than placing the whole job of reducing inflation on interest rates.

If that had been the case, interest rates would need to rise to say 7% (or more), causing the economy (and property market) to stall ... and thus create a subsequent deep and long recession.

Therefore, with the Bank of England having recently increased its base rate to 3.5%, with more interest rate rises to come in 2023, what does this and the mild recession mean for the Southampton property market?

A recession will increase unemployment levels, which have been comparatively low in the last few years. Depending on the type of roles/jobs that are made redundant, will determine the effect on the property market. Until that happens, we won’t know.

Everyone is suffering from higher gas, electric and shopping bills, yet with interest rates rising, this will increase the pressure on household budgets. Higher interest rates mean higher mortgage payments if the homeowner/landlord is on a variable rate mortgage (17 out of 20 homeowners with a mortgage are on a fixed rate).

 

It’s these two factors of recession and interest rates that will place negative pressure on Southampton house prices.

 

Yet let us not forget this pressure is coming off the back of two of the strongest years on record in terms of house prices and transaction levels.

 

Southampton house prices have experienced 22.1% price growth since the pandemic started in March 2020.

 

This is interesting when compared to the UK average, where average house prices have risen by 27.4% or £44,700 since March 2020.

Before I tackle the issue of house prices in 2023, I would like to look at the number of transactions.

To many the number of properties selling is irrelevant, yet I believe it is as important, if not more important, than house prices. I believe the best way to judge the health of the Southampton property market is the number of people moving home (i.e., housing transactions).

 

You could ask yourself why Southampton people should be more concerned about the number of property transactions and not the change in Southampton property values.

 

Many economists believe the number of property transactions is a better judge of the health and virality of a housing market. The higher the number of people moving home is better for the whole economy than a smaller number of property transactions, whilst the same can’t be said for higher house prices.

Transactions levels have been quite high in the last couple of years.

 

3,725 households per year have moved home in Southampton since lockdown, compared to the long-term 27-year average of 3,132 per year.

 

Looking at the stats coming through in the last couple of months, maybe we will settle for a figure somewhere between the two figures above, yet nowhere near the sub-2,500 annual figure of homeowners moving in the Credit Crunch years in the 2008/9/10 time frame.

Finally, let’s look at Southampton house prices in 2023.

A good place to start to judge house prices is how many reductions are taking place on the properties that are already on the market.

 

In the last 3 years, the average number of price reductions for the properties for sale in the Southampton area (SO14 to SO19) has been 160 reductions per month.

 

In October there were 310 price reductions and in November 296 reductions.

 

Homeowners are being more realistic with their pricing and the price that one will achieve for their Southampton home today and the rest of 2023 will be lower than one would have achieved in the spring of 2022.

Yet, as most Southampton people buy another property when they sell (and most of the time move up market) the price you would have had to pay on the next purchase would have been even more.

 

Yes, the price of Southampton property will be lower in 2023 by between 5% to 10%, yet these are only levels that were being achieved in the spring of 2022 – and nobody was complaining about those!

 

Final thoughts.

Several economic commentators are preaching doom and gloom for the property market in 2023, yet things are very different than the Credit Crunch years of 2008/9.

The property market crashed in 2008/9 mainly because the banks and building societies stopped lending money i.e., credit (that is why it was called the Credit Crunch).

There are two large differences this time round.

The first is the introduction of Mortgage Market Review mortgage stress testing instigated in 2014.

Homebuyers taking out a mortgage must have undergone a stress test on interest rates to obtain a mortgage since 2014. These stress tests are a safeguard to ensure that if their household income continued to be the same, the homeowner could afford higher mortgage rates.

The second is the banks and building societies have much higher cash reserves. Higher reserves will ensure they can continue to lend money and so more mortgages are available, although at a slightly higher interest rate than a year ago.

With mortgage rates falling back, with some very attractive fixed-rate deals knocking on the door of 5%, this is a development that may continue into 2023 as banks and building societies obtain cheaper funding sources and then compete for business by driving down the price of mortgages - which would only be good news for the Southampton property market.

These are my thoughts - what are yours?

Has the Southampton Property Market Peaked?

Should you buy now or wait for the bargains?

• Many commentators believe we have seen the peak of the Southampton property market.

• So, should savvy bargain hunters wait for Southampton house prices to fall?

• Or could postponing your house buying for any anticipated Southampton house price drop be a costly mistake?

Over the last two years, the Southampton property market has been a rollercoaster ride of hyperactive demand together with the new sport of getting your offer accepted when you compete with 30 other bidders.

 Yet there are clouds on the horizon that the Southampton property market could be at its peak.

Bank of England interest rates have increased four times in the last few months to try and combat inflation. Meanwhile many Southampton households are finding it tough to counter the most significant drop in real incomes in a single year since records began in the mid-1950s, all at the same time as gas, heating oil and electricity prices are predicted to rise again in the autumn.

Hence why some economists are predicting house price drops in the coming 18 to 24 months of 3% to 5%.

So, surely this is not the best time to buy a Southampton property – and surely savvy buyers should wait for Southampton house values to fall?

Is it realistic to see continued double-digit national house price growth? Certainly not.

The question is how far the Southampton property market will slow and whether the slowing will drop into modest falls.

Let me look at household income first.

At best, the outlook is gloomy as real household disposable income is set to drop by 2.4% in 2022/23, the largest drop since records began in 1956. This is despite the £17.6 billion of financial support for British households revealed in Rishi Sunak’s Spring 2022 Statement with the National Insurance thresholds, energy bill support package and duty cut on petrol. Without these changes announced by the Chancellor, real household disposable income would have fallen by an additional 1% in 2022/23.

Second, as interest rates increase, mortgage rates will increase in line, increasing mortgage costs, so surely that will curtail demand, meaning Southampton house prices will drop, and buyers should wait to catch a bargain?

Finally, with inflation on the rise, the real value of people’s savings will decrease quicker, and the value of their deposits will diminish, meaning Southampton prices will surely drop, and people should wait to buy?

 

Surely the Southampton property market has peaked and

buyers should wait for the bargains?

Well, I don't think so, and these are my reasons why.

I believe, subject to no significant shocks in the world economy, Southampton house price growth will be very slow in the next 18/24 months and go into low single digits (even the odd month dipping ever so slightly into the red), but not the 16% to 19% annual drop we saw in 2008/9.

 

Let me look at real household income. Every economist predicts growth in real household income in 2023/24 by around 1%.

If the two years are combined, the predicted effect on real household income in the next two years is a net loss of 1.4%, whilst in the credit crunch years 2010/11/12, the net loss was 2.7%.

I was looking at the increase in mortgage rates. 79% of owner-occupiers have fixed their mortgage costs and had their affordability stress-tested to Bank of England interest rates of 3% to 4% under the Mortgage Market Review rule changes in 2014. I believe the most significant impact of increasing interest rates will be at the point of taking on a new mortgage by first-time buyers (as opposed to servicing or the porting of an existing mortgage from one house to the next house).

The four successive Bank of England base rate rises, inflation and the rising cost of living are likely to bring more cautiousness over summer and autumn when it comes to people buying a property. Yet, there is still a massive imbalance of demand for property over the number of properties for sale to quench that demand.

The potency of the job market and the ongoing mismatch between the supply of properties (mentioned in last week’s article on the Southampton property market) on the market and demand for those properties will support property values.

Finally, the by-product of increasing inflation is that it makes buy-to-let more attractive. If there is a reduction in first-time buyers, this will be counterweighted by more landlords buying again, supporting the current level of Southampton properties.

 

But what if Southampton house prices do drop significantly?

So let’s assume that Southampton house prices do fall, irrespective of the reasons above, it will not inevitably help Southampton buyers.

If we have a house price crash, people tend to find their careers are at risk, and their salaries don’t rise as much. The younger generation (i.e. first-time buyers age range) often gets hit the toughest by recessions.

If first-time buyers wait until 2024 to buy and Southampton property values drop by 10%, that will prove more expensive.

In the last 2008/09 crash, lenders weren't offering 5% deposit mortgages. The lowest deposit mortgage that first-time buyers could get was with a 10% deposit and even then, they were hard to come by.

When writing this article, first-time buyers can obtain a 5% deposit mortgage for a fixed rate of 2.66% for five years.

 

The typical first-time buyer terraced house in Southampton

sells for £273,900.

 

So, if they were to buy now, on this mortgage deal, the first-time buyer would have to stump up a £13,695 deposit and their mortgage payments would be £952.68 per month.

Yet, let’s say property values in Southampton do drop by 10% in the next 18 months, the terraced house would now be worth £246,510, so a significant saving. Or is it?

Everyone believes interest rates will rise further, so let’s assume they go to 3% by the autumn of 2023. That means the mortgage rate for a 10% deposit mortgage will be in the early 5%’s, so let me assume 5.29% (because the banks tend to increase the gap between the base rate and the mortgage rate in recessions to allow for the extra risk).

The monthly mortgage payment on the 5.29% mortgage would be £1,161.06 per month, and you would need to double your deposit to £24,651.

So even if Southampton's house prices did drop by 10%, the first-time buyer would be £2,500 worse off a year in mortgage payments and would have to find double the deposit.

 

...and then there is the other cost of waiting.

You have two years’ worth of rent to pay. The average rent for a Southampton property is £1,167 per month.

If you waited a couple of years for Southampton house prices to drop by 10%, you would spend £28,008 in rent.

Choosing to buy a Southampton property makes even more economic sense if it is a long-term choice, as homeowners can ride out any house price drops.

Homeowners who plan to stay in a property can generally rely on getting their money back within six to ten years whilst not paying any rent.

Will Southampton prices go up, or will they go down?

Remember, George Osbourne said house prices would drop by 18% in May 2016 if we voted to leave the EU, whilst many economists said they would drop by 5% to 10% when Covid hit in March 2020.

And we all know what happened.

If you think you will be better off owning your own Southampton home rather than renting one, don't bother to wait for the suggested house price drop that may never happen.

These are my thoughts, what are yours? Let me know in the comments.

Wow your buyers! 12 styling tips they’ll love

  

“Give your home the ‘wow’ factor!”

We’ve all heard this advice from property experts, but what does it mean? And how do you do it? Most importantly, is it worth the time and effort it may cost you?

All good questions, and the answers will be revealed in this article – so let’s dive in…

 

“What’s a ‘wow’ factor anyway?”

It’s that elusive magic ingredient that turns a home from standard to exceptional; from forgettable to unforgettable; from ‘meh’ to ‘wow!!’

 

“Ok I get that, but how do I create it in my home?”

Sometimes it’s as simple as adding a lifestyle touch to your kitchen, with a beautiful cake on a pretty stand, surrounded by fruit. Something like this:

 

Or you may need to spruce up a room by refreshing the décor with contemporary cushions, new furniture placement and some styling touches like flowers and magazines.

 

Bedrooms can be forgotten and unloved, especially if they’re rarely used, so treat them to some new bedding, a luxurious throw and even some new artwork for the walls.

 

“Is it worth spending time, effort and money on styling my home if it’s going to sell quickly anyway?”

As I write this, there is a definite scarcity of homes on the market. Homes are selling fast, and often over the asking price. But while today’s ‘sellers’’ market may make it seem that house selling is easy, no matter its condition, spending a little T.L.C. on your home to make it even more appealing is a smart move for two reasons:

1. When the market turns, your home will still stand out in all the right ways, and
2. Even in a sellers’ market, you need to be confident you’re not leaving any money on the table and losing out to competitive homes just because they are more attractively styled.

As you can see, styling doesn’t have to be difficult or expensive, and adding the ‘wow’ factor to your home could be simple and fast to do. If you’re feeling inspired and keen to get started, the team and I have compiled a list of 12 simple ways to wow your buyers. Let’s go! 

 

1. Make a big, bold statement

To create a ‘wow’ feature, add a special piece to the entryway of your home. A large photographic print, original artwork or over-sized vase will instantly capture attention, pique a potential buyer’s interest and make them want to see more.

 

2. Showcase your best spaces

To make a room feel large and open, moving or even removing unnecessary furniture will simplify it. This helps your buyers to make it their own in their heads, imagining how it will look with their furniture and accessories. When rooms are full of furniture, buyers find difficult to see past what’s there and envision your home’s potential.

 

3. Romance your buyers

Think: date night. Soft lamps, gently flickering candles, a crackling fire and subtle music playing – these all set the scene for a romantic date, but also for a successful viewing. Buyers buy with their hearts, not their heads, so appeal to their softer side, stir their emotions and make sure they leave wanting more!

 

4. Create a culinary experience

So many of us are budding chefs these days with the popularity of Masterchef and Bake-off, so create a mouth-watering experience for your buyers as they step into your kitchen! Try an Ottolenghi cookbook, casually open on the side, with some posh cookware and even posher ingredients, to create the impression that culinary magic is about to happen.

 

5. Play it safe in the bedrooms

Bedrooms are no place for strong and vibrant colours, unless you are a professional interior designer, and even then you risk sending your buyers running for their car if your bedrooms are overpowering. Even if you love bold colours, when you’re selling your home, you need to pander to a buyer’s tastes, rather than foist yours on them. So keep bedrooms light and simple. Crisp white bedding with plump pillows, dressed with a throw and some cushions in a subtle shade will give your bedrooms a hotel quality a buyer will love.

 

6. Set the table

Why not set your lovely dining table for dinner with your best dinner set? If you don’t want to go the whole hog with silverware and glasses, just add placemats, plates and glasses for an understated look. Add a floral centrepiece and voila! Your home is ready for its House Beautiful debut.

 

7. Add colour sparingly and subtly

If you’ve neutralised your home so much it looks bland and maybe a bit boring, it’s time to add some colour. The safest way to add interest is with soft furnishings: rugs, cushions and throws add colour and warmth and can really help co-ordinate a room. If you’re not sure what colours might work, look at high street stores like Next and Wayfair for ideas, and Pinterest for inspiration.

 

8. Use mirrors to make rooms feel bigger and brighter

Mirrors are a great way to bounce that light around your home and banish dark corners. Try a mirror instead of a picture over a fireplace or above a sideboard. Mirrors can make narrow spaces like hallways and landings look wider and help open up the space, and they can also transform a tiny bathroom.

 

9. Give your dining room table a fabulous centrepiece

The dining room tends to be a place for celebrations, but it’s also a room that can feel a touch bland when it’s not being used. The perfect solution when you’re selling is to lift the look and atmosphere of the room by having a stunning centrepiece that gives a sense of occasion. Perhaps a large bowl of fresh hydrangeas, a tall vase of flowers and foliage (either real or good-quality imitation) or an arrangement of storm lanterns and pillar candles – something that will leave a striking impression on buyers.

 

10. Make the fireplace a focal point

Fireplaces are certainly an attractive selling feature, so make the most of them. If you have a working fireplace, make sure the hearth is clean, the fire is always laid and you have a lovely store of logs beside it, ready to light for viewings. And if you can’t or don’t want to light a real fire, why not fill the recess with a selection of pillar candles? That can look really pretty, and even if there’s no actual heat, the flames will give the illusion of warmth.

 

11. Bathrooms that wow

In the bathroom, tidy away the products you use every day – toothbrushes, toilet cleaner etc. – and make sure your sanitaryware is sparkling. Add a set of fresh white towels and luxurious toiletries (Jo Malone or The White Company), a room diffuser and a couple of pretty plants, and your bathroom is ready to show off.

 

12. Bring your doorstep to life

And let’s not forget the front door. Plain styles tend to work best for contemporary homes, whereas if you have a period home, a red or navy front door can look classically smart. Adding bay trees or shaped conifers completes the look. If you’re lacking in inspiration, google “front doors” plus your type of home. For example, “front doors for contemporary home”. You’ll see pages and pages of beautiful ideas to copy and make sure your buyers are wowed on the doorstep.

As you can see, we’re big fans of styling a home to wow buyers! And we know it works. The homes we sell that have been skilfully styled tend to get more viewings, and better feedback too from buyers.

If you’d like a complimentary consultation on how your home could benefit from being styled – either a little or a lot – we’d love to share our ideas with you too! Just call me on 02380018222  or email me brian.linehan@belvoir.co.uk and we’ll have your home wowing buyers in no time.