Housing market appears to defy gravity: momentum will only get you so far

House price growth surged to 14.3% in the year to March – and prices are up 1.1% in a month. This is the fastest growth since 2004. Average house prices hit a record high of £265,312 – up £33,000 in a year.

The Nationwide House Price Index for March was released today: UK house price growth surges to its highest level since 2004 (nationwidehousepriceindex.co.uk)

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “The housing market is enjoying a Wile E. Coyote moment, as it briefly appears to defy gravity this month. But momentum can only take the market so far, and eventually even Wile E. Coyote looks down. Pressures on buyers are growing, and over the coming months we’re likely to see demand and price rises slow.

Property prices have been pushed up partly as a result of pent-up demand during a time when supply has been so thin on the ground. A wave of properties hitting the market in early 2022 means many of these people have finally been able to buy. Those who have chosen to use any lockdown savings as a deposit on a bigger property have helped boost demand.

But there will come a point when this demand is sated. Zoopla figures show supply is rising and demand dropping back slightly, and while it’s still high for the time of year, it’s not going to propel the market ever-onwards forever.

The employment market has also been supportive, with record vacancies, a record low rate of redundancies, and unemployment back to pre-coronavirus levels. People feel secure enough in their jobs to make commitments for the future.

Security is a major factor, but so are wages, and this is where the weakness in the employment market may come. If wages fail to keep up with runaway prices, buyers are far more likely to think twice about stretching themselves to buy ever-more-expensive properties. The eye-watering hike in energy costs hits us on Bleak Friday this week, and we could see more buyers questioning whether now is such a good time to buy.

Despite recent rises in mortgage rates, they still remain at historically low levels. With rents on the rise, buyers may well be calculating that even at these higher rates, it’s cheaper for them to buy and pay a mortgage than continue to pay rapidly rising rents. As mortgages continue to climb, we’re likely to see more people reassessing this balance.

Sentiment also plays a key role . While prices are booming, people have the confidence to pay more for a new home, and price rises become a self-fulfilling prophecy.  When demand starts to drop away, the rising cost of living starts bites, or mortgage costs rise significantly, prices rises will slow, which will dent enthusiasm for the market, and persuade more buyers to step away.


Second-steppers are already finding it increasingly difficult to make the move. The price of houses has continued to outstrip flats. Detached house prices have grown 22.6% since the onset of the pandemic, while the price of flats is up 14.1%. There’s also a growing gulf between the average price of flats and the average of terraced houses – which has stretched from £12,000 to £25,000 during the pandemic.

This makes life far more difficult for second-steppers trying to make the move somewhere spacious. They’re not helped by the fact that there are so many people in this position, as the pandemic reminded them of the value of more space – both indoors and outdoors – which has pushed the price of houses up faster than flats across the board. There may well come a time when the gulf is just too difficult to breach, which could put the brakes on the market.”