UK house prices are currently overvalued by 8%, and are on track to be around 1.5% higher by the end of the year.
The jump in mortgage rates over 2023 led to UK house prices becoming overvalued by 13% at the end of 2023.
And as of Q1 this year, UK house prices are around 8% overvalued, according to Zoopla’s latest House Price Index.
Based on its long-run model of house prices which looks at whether they are too expensive or fairly valued, they were more than 50% overvalued in the run-up to the global financial crisis in 2007, and even more so in the late 1980s during the housing boom.
It stated the economic recession led to “double-digit house price falls” after this overinflation, adding that the more recent modest overvaluation of home prices “explains why there have been modest annual price falls over the last year compared to previous periods”.
But Zoopla said this overvaluation will disappear by the end of the year, assuming that house prices rise 1.5% (£3,900) and mortgage rates remain at 4.5%.
“Rising incomes and longer mortgage terms are helping to improve affordability, which will, in turn, support the continued improvement in sales volumes and single-digit house price growth over H2 2024,” Zoopla said.
Its latest index also revealed that homebuyers are not being swayed by uncertainty from the election or higher house prices, with new sales agreed up by 8%, demand rising by 6% and a fifth more homes on sale than a year ago.
But there are signs that the housing market is beginning to “seasonally slow”, with sales agreed falling slightly month-on-month across all regions.
The highest slowdown was seen in the North East at -6% and the West Midlands at -5%.
The overall stock of homes is on the rise in all areas, but has started to slow in recent months, Zoopla said.
More than a million sales expected this year
Zoopla said that the market is expected to make 1.1 million sales in 2024, with three-quarters of these sales either completed or agreed and working towards a completion.
The firm said that a quarter of a million sales are yet to be agreed.
Zoopla said that the 1.1 million figure is a 10% rise on 2023 but below the 20-year average, although it added that rising sales were a “positive” and show “more realism on the part of sellers and renewed, cautious confidence amongst buyers”.
The report stated that interest rates held the key for mortgage rates, which in turn would dictate the near-term outlook for sales.
Based on forecasts for the base rate, mortgage rates are predicted to stay in the realm of 4-4.5%, which Zoopla said was “sufficient to support sales volumes and low, single-digit levels of house price growth”.
The report suggested that house prices in the South of England would continue to “under-perform” compared to the UK average as “as income growth is the key to supporting sales and demand into 2025”.
Richard Donnell, executive director at Zoopla, said: “The housing market continues to adjust to higher borrowing costs through modest house price falls and rising incomes. Buyers using mortgages are also relying on longer mortgage terms to gain that extra few percentage points of buying power to afford a home.
“The general election campaign has had a limited impact on market activity, although the seasonal summer slowdown is arriving. Sales agreed continued to increase and more homes for sale means more buyers looking to move in the second half of the year.
“The timing of the first cut in the base rate is a key moment and will give a boost to both market sentiment and sales activity. Overall, we expect house prices to be 1.5% higher over 2024.”
