House prices in Wales are set to fall over the next year as the cost of living crisis begins to bite, economists have said.
The Centre for Economics & Business Research said that house prices in Wales would fall up to 4%, after seeing the highest growth in house prices during the pandemic due to a ‘race for space’ out of urban areas.
Karl Thompson from the Cebr said that as costs rise the Bank of England was likely to raise interest rates, increasing the costs of mortgages.
“Higher inflation will lead to bigger falls in house prices,” he said. “Downvaluations are red flags we are reaching some kind of turning point in the market.”
At the moment prices were continuing to rise as “sellers are overambitious, but people are desperate to complete a sale so they overbid,” he said.
House prices in the UK would rise another 4.8 per cent in the short term but fall 2 per cent across the year, the CEBR said.
Wales faced a bigger fall because house prices had surged faster than any other part of the UK during the pandemic. The average Welsh house price hit a new record high of £211,942 this month, or a 14.1% jump on this time last year, Halifax said.
Russell Galley, managing director of Halifax, said that in the long-term “we know the performance of the housing market remains inextricably linked to the health of the wider economy”.
He added: “There is no doubt that households face a significant squeeze on real earnings, and the difficulty for policymakers in needing to support the economy yet contain inflation is now even more acute because of the impact of the war in Ukraine.
“Buyers are therefore dealing with the prospect of higher interest rates and a higher cost of living. With affordability metrics already extremely stretched, these factors should lead to a slowdown in house price inflation over the next year.”