According to a recent article in the BBC News house prices are set to fall, but rents are set to rise in 2024.
I found this intriguing because at first glance this seems to defy market logic...
If house prices are falling you would expect this to encourage more people to buy houses, which should lower demand for rentals, thus lowering the price of rentals too.
HOWEVER this is NOT the case here....
So what's occurring...?
How can house prices go down AND rents go up at the same time...?
I think TWO factors are at play which means the housing market operates slightly differently to other consumer markets, given that housing is so very expensive and SLOW to adapt....
Firstly there is a shortage of housing in the UK. There simply isn't enough housing to meet the demand. Renters have to compete with each other. Planning laws don't help this.
Secondly, the people who own houses to rent tend to be wealthy, and they can afford to sit on them for a period at break-even in anticipation of the market picking up in the future.
Is it inevitable that house prices will come down further...?
This seems logical... when it comes to First Time Buyers, those who rent have seen the cost of renting go up by around 30% over the last few years, meaning their capacity to save to buy has been drastically reduced.
This represents a good chunk of the demand side of the housing market, just ordinary 30 somethings who are priced out at current prices.
Meanwhile buying to rent is less attractive in the current climate.... it makes no sense to buy an asset today that is declining in value at the same rate that rents are increasing in value, especially when it feels unlikely that rents are going to go much higher, there simply isn't that much capacity in the market.
(There comes a price-point when living with your parents into your 30s seems like a MUCH better option!).
Conclusions...
I think the most likely situation is a gradual trend downwards for house prices, given that there simply isn't that much capacity for people to pay more towards rent and that buy-to-let is no longer an appealing investment option, meaning more housing should come online this year for people to buy to live.
