The housing market was on fire throughout the pandemic…

In 2021, the UK average price of a home was north of £250,000.  As of January 2022, the average house price was approximately £274,000, up from £250,000 in January 2021. 

The rise has continued this year, although house prices dipped by 1.3% or £4,795 in cash terms month-on-month in August. However, Rightmove put that down to seasonality.

But could we see this pace continue to slow down later in the year?

Looking at the chart above, it’s not a stretch to state that the rate of price increases we’ve seen since 2013 is not sustainable.

The cost of a home is now over seven times average earnings, placing housing affordability at its most stretched.

In addition, mortgage rates are rising, and inflation is soaring, putting a further strain on consumer wallets and housing affordability.

I want to be clear, we are not Michael Burry, and we are not predicting the ‘Big (housing) Short’…

I mean, one could occur, but that’s not what we are saying. Last week it was reported that house prices in the UK dropped for the first time this year, and we see a further slide as demand wanes.

This will impact Rightmove shares. Although, at the moment, the demand metrics we usually watch don’t show a significant slowdown. Here’s what we see so far: 

Affordability

Now, this is nothing new, we all know affordability has become extremely stretched.

However, 2022 has worsened further, with the house price to income ratio now at 7.1, the least affordable on record.

A Dip in House Prices 

Meanwhile, the Halifax House Price Index shows a dip in the annual percent change, three-month on three-month percent change, and the monthly percent change in house prices, possibly representing the beginning of a larger slowdown. 

Demand

Now, this isn’t a reason we are bearish just yet, but it is something we will look at for signs that demand has taken a hit. 

There has been a slight dip in visitors to the Rightmove site over the last four months, but it is nothing significant, with web traffic still just below all-time highs. This is a metric we will be watching closely. 

However, we have seen a dip in Twitter mentions of buying a house, which is down around 15% compared to the last quarter. 

Bottom Line

The current macroeconomic climate is weighing on the housing sector and demand at current prices. 

We have seen the first dip in the market this year, which was put down to seasonality, but we see it continuing and weighing on the share price of Rightmove. While company-specific demand metrics don’t yet suggest a strong decline, it is something we will be watching very closely over the next few weeks/months.