Activity levels in the market have fallen, but a shortage of homes for sale is supporting house prices.

Activity in the housing market is slowing down in the face of rising interest rates and economic uncertainty.

The number of people looking to buy a home fell for the fifth month in a row during September, according to the Royal Institution of Chartered Surveyors.

There was also a further fall in the both the number of homes put on the market and the number of sales agreed.

But the ongoing shortage of properties for sale continued to support prices, with estate agents having a record low of just 34 homes on their books on average.

Although estate agents reported a slowdown in the rate at which house prices are increasing, they are not currently seeing price falls.

This mismatch between supply and demand is expected to continue to support property values in the year ahead, with estate agents predicting ‘a slight dip in prices’ in the next 12 months.

Why is this happening?

A combination of rising mortgage rates and the cost-of-living squeeze is making people more cautious about making a big financial purchase, such as buying a house.

The situation has been exacerbated by the economic uncertainty created by the mini-Budget and talk that the UK is heading for a recession.

But at the same time, the ongoing shortage of homes for sale has continued, meaning there are still more potential buyers than there are properties on the market.

This situation is helping to prevent widespread price falls, despite rising mortgage rates.

Simon Rubinsohn, RICS Chief Economist, said: “The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market.

“Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction.”

Who does it affect?

Estate agents reported a deterioration in housing market activity across all regions of the UK.

The RICS data adds to House Price Index which suggests the market is pivoting from being a sellers’ market to a buyers’ one.

If you are considering buying a new home, the slowdown in activity may enable you to negotiate an offer below the property’s listing price.

You are also not likely to face the same level of intense competition from other buyers as you would have done earlier in the year.

But with mortgage rates rising, it is important to do your sums to make sure you will continue to be able to afford your mortgage repayments as interest rates continue to rise.

If you are selling a home, you may not be able to achieve such a high price for it as you would have been able to over the summer.

But despite the drop in buyer numbers, there are still people looking to move, and the shortage of homes on the market means you should be able to achieve a sale.

What’s the background?

The RICS survey pointing to a slight dip in prices contrasts with predictions from some commentators that the market is facing widespread price falls.

Richard Donnell, director of research and insight at Zoopla, is not expecting house prices to fall this year.

Going into 2023, he points out that there are both positives and negatives that will impact the market.

“The importance of the home to households remains and pandemic and cost-of-living pressures will continue to stimulate home moves, probably from an older cohort of sellers.

“Who will buy these homes and what they can afford will dictate the outturn for 2023. Some form of price correction is likely but the scale is far from clear and will vary by region and property type.”

Key takeaways

  • The number of people looking to buy a home fell for the fifth month in a row during September
  • There was also a further fall in the number of homes put on the market and the number of sales agrees
  • But prices held firm due to the shortage of properties for sale