A look back, and a look ahead.

9th January 2025

The housing market ends 2024 in much stronger place than it started; we reflect on the improvement in the housing market since the start of the year and look ahead to what is in store for 2025.

More positive underlying economic and financial drivers of residential prices have been critical to that change. At the start of the year interest rate cuts hadn’t commenced, inflation was double the target rate and economic growth wasn’t strong enough to help drive price growth. By the end of 2024, a range of those economic drivers had improved and contrary to negative consensus forecasts at the start of the year, house prices have grown by 3.7%. Critical to that change has been lower inflation allowing the Bank of England to start cutting interest rates. Five year mortgage rates are improved on this time last year and significantly improved on two years ago.

Economic growth has been sluggish and there have been points throughout the year that caused growth to pause (uncertainty surrounding the General Election in July and the Budget in October) but nevertheless economic growth has been stronger in 2024.

Next year looks set to be a similar year for the housing market: economic forecasts currently suggest a little potential upside to GDP growth, continued lower inflation (although sitting just above target) and further interest rate cuts. As a new year begins, it is a good time to think about what lies ahead for the housing market.

After several years of strong rental growth, the pace slowed at the end of 2024 and that trend is forecast to continue. Earnings, a key driver of rents, are also expected to grow at a more moderate pace over the next few years. By the end of 2024, annual house price growth had reached 3.7% and the market looks set for another solid year in 2025. Affordability is always central to the outlook for house prices and further interest rate cuts in 2025 will help improve this further. But the mixed economic outlook means there is currently limited impetus to drive price growth much higher than these forecasts.

A stable price environment will allow for more transaction volumes – transaction activity, like 2024, will be much improved on the low levels evident in 2023.

Source: Dataloft by PriceHubble, consensus across several real estate consultancies