Average house prices rose by 7.2% in 2022 but demand is now falling fast, according to Zoopla.

The property portal said that demand for homes has halved over the past year, as buyers hold out to see what the market and economic outlook is in January.

And it predicts house price falls in 2023, due to cost of living pressures and higher mortgage rates.

Reversal of the race for space

During the pandemic the housing market saw demand increase in rural and coastal areas and reduce in cities, as people looked for larger homes with outdoor space and home offices.

2022 saw a reversal of this trend, said Zoopla. It noted that urban areas are still recording above average demand for homes in places such as Bradford, Swindon, Coventry, Crewe, Southend and Milton Keynes.

However, there’s a slowdown in sales agreed and buyer interest in rural and coastal areas.

The number of overall sales being agreed are holding up, down just over a quarter (28%) year on year, however many sellers are having to accept bigger discounts (4% off initial asking prices in November on average) to achieve a sale.

Despite this, average UK house prices increased by £17,500 in the last 12 months although Zoopla expects prices to fall by up to 5% in 2023. It also predicted average price falls in London could be 5-8%.

Richard Donnell, executive director at Zoopla, said: “2022 has been a strong year for the housing market with the second strongest year for sales in more than a decade at 1.3m. The fallout from the mini budget, with mortgage rates hitting 6.5%, brought the market to a near standstill in the last quarter. We expect buyers to return to the market in the new year, but they will be far more cautious and price sensitive.”

Jack Roberts, CEO of home moving platform SlothMove, added: “Cost-of-living gloom and the prospect of a new year dominated by recession means heads are now ruling hearts in this market. For many buyers the game plan for the next few months will be to simply sit on their hands and wait to see how far prices move in their favour.

“The race for space has turned into a shuffle for stability as house hunters are increasingly shunning a place in the country in favour of tightening their belts in commuterville.”

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “The cost-of-living crisis is biting down hard on our finances and rising mortgage rates have put off all but the most determined of buyers. Added to this, the prospect of a looming recession is enough to make many people delay a house purchase for the foreseeable future.”