Our Predictions for 2023:

As per previous years, we repeat and reiterate that; residential property investment is a long-term investment over a 5+ year time horizon. Predictions over 12 months are provided for interest only, rather than any forecast of investment performance.

• Phrase; what phrase will best describe the residential market in 2023? For 2020 and 2021 we used “optimistic”, for 2022 “boringly optimistic”. For 2023 we go with “better than expected”. Most commentators predict house price weakness or crashes of c10-20%. We think returns will be better than this.

• Capital values: Direction: FLAT, Magnitude: 0%. On a national level house prices will end the year flat. This is the national figure, there will be large regional differences. We are going out on a limb in saying this.

• Timing and Transactions: Spring will be subdued with price weakness, we need know if we have got “on top of” the inflation growth. We need clarity on interest rates and the wider economy. Summer will be quiet with a flat market. Autumn and Winter will be stronger as confidence returns, meaning over the year prices are flat.
• Short term price movements; herein lies the story for 2023. Throughout the year there will be opportunities for the well advised, savvy purchaser to pick up new purchases with prices down 10%+ from 2022 levels. There will be weakness and this will present buying opportunities, BUT the market will bounce back quickly in 2H, so that over the 12 months the market is flat.
• Long term capital appreciation: Our 2016 prediction of a 5-year capital return of 23%; was exactly correct to end of 2021! We were very proud of that prediction. Our prediction for 2019-2023 was 17% (Savills 15%), and for 2020-2024 15% (Savills 13.5%), and for 2022-2026 18% (Savills 13%); to date 2% in 2019 actual, 6% 2020 actual, 10% 2021 actual, 4% 2022. Steady away, remember this is only capital appreciation, combined with an annual net rental yield of say 5% per annum in the Midlands, makes for a very attractive blended return of capital appreciation and annual rental yield.
• Regional variations in property prices: The market is highly fragmented and it is imperative that residential property is purchased in the right location (location, location). For our favoured region of the East Midlands we predict 0%. The “East” (East Midlands and East of England) are economically vibrant and will continue to benefit from the “escape to the country” trend.
• Rental growth: Will be 5%. There is continued constrained supply of rental stock (buy to let supply continues to fall), whilst tenant demand continues to grow. Technology has enabled the younger generation to have more job mobility, more flexibility and so more demand for renting.
• Interest rates: difficult one! Base rate is 3.5% now. With continued high inflation small increases in interest rates can be expected over the first half of 2023. We expect a base rate of 4.5% at year end. This is still not high, and potentially this is more “normal” from a historical perspective than a rate of 0.5%!
• Mortgages: Increases in interest rates will act as a drag on the amount buyers can borrow relative to their income, but still be readily available with good supply. The Government will free up the restrictions on levels of lending.
• Prime Central London: London is one of the most amazing cities in the world. In the 7 year period to 2021 the market fell c20%. Last year, there were glimmers of life in the PCL market but the market did not rise in capital terms. We forecast a flat market for 2023. Then into 2024 we expect strong price growth driven by affluent domestic and international buyers, many of whom do not need borrow. Over the next 5 years we predict 20% upside to prices.
• Overseas buyers: as travel restrictions ease, the GBP remains weak, and international travel is far easier now, we expect an increasing amount of overseas buyers in the UK, principally in London
• Working patterns; homeworking and other hybrid working patterns will become more readily accepted in the UK. Combined with the eternal quest for better quality of life, we expect this to drive demand in desirable rural areas such as Rutland and Leicestershire; this trend will certainly continue throughout 2023.
• Headwinds: It is difficult sometimes to know what normal is these days. Covid, Ukraine, Inflation, Interest rates, energy prices. We are positive for 2023, thick skinned after a punishing few years we are quietly upbeat about the market.
• Independent: It is important to note that for 2023 we are going out on a limb in predicting no change in house prices. The overwhelming majority expect falls of 10% and many mention crashes of 15-25%. We simply cannot see this happening. Perhaps we are too close to the market, perhaps not. Lets see, but if the market is flat over the year and our predictions are correct, we expect a lot of praise!

• A couple of other random predictions for 2023: for entertainment purposes only! our stock pick for the year is amazon at $85, am going to stick to the prediction that tesco (224p) will be taken over, we continue with our existing 60% return maintaining a short in bitcoin (E15500), the S&P500 will rise, the FTSE 100 will rise and outperform the S&P500. Sterling will strengthen against the euro to E1.25. Rishi will remain Prime Minister, Russia will continue its invasion of Ukraine throughout the whole of 2023.

• We predict that these 2023 predictions will be OK! Forecasting is a foolish game, and we have gone against the tide with our price predictions. There will continue to be shocks and extremes (of everything) but we are more tolerant of them!

PLEASE SEE PART 2 OF OUR NEWSLETTER WHERE WE SHOW OUR RECOMMENDED AREAS TO BUY

Our property services include property investment, lettings and management and estate agency. Please see links for further details;

www.osprey-property.co.uk

www.residentialgroup.co.uk

We wish our clients and friends a very prosperous 2023

The Team at Osprey Investments (a division of Residential Property Group Limited)