Demand in January has been in line with pre-pandemic levels but is down on more recent years, according to property site Zoopla.
At the same time, supply is picking up. The average estate agent has 23 properties for sale up from lows of 14 homes this time last year.
This gives buyers more choice and reduces pressure on prices and, as a result, sellers must make sure their home is competitively priced to secure a sale, Zoopla added.
Flat demand up, family homes down
First-time buyers have been more impacted by higher mortgage rates and have shifted towards flats, with demand up five per cent compared to a year ago.
In comparison, the share of demand for three-bedroom houses has fallen by the same amount, according to Zoopla’s data.
Outside London, the average two-bed flat listed for sale at £196,000, almost £100,000 cheaper than an average three-bed home.
The property site has predicted that buyers will remain cautious in the next few weeks before demand picks up after Easter when a clearer picture of the market emerges.
The economic outlook, the strength of the labour market and inflation will impact confidence, Zoopla added.
‘Demand to improve in coming weeks’
Richard Donnell, executive director at Zoopla, said: “The first few weeks of the year have got off to a stronger start than might have been expected given how market activity stalled at the end of 2022.
“There has been a clear shift towards flats as the early buyers focus on value for money and adjust expectations, given the hit to buying power from higher mortgage rates.
“A proportion of existing homeowners are holding back waiting to see if sizable price falls materialise and how far mortgage rates fall back before entering the market.
“We believe demand for homes has room to improve further in the coming weeks. Anyone serious about selling needs to be realistic on the asking price and needs to ensure this is in line with what buyers are prepared to pay.”
A buyers’ market emerging
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, added: “Wait-and-see buyers will force sellers to wake up, smell the coffee, and cut their prices. After the 50 per cent collapse in demand at the end of the year, it recovered a little in January. However, buyers are trimming their expectations, and turning their attention to flats.
“Sellers are more resistant. It’s going to take a few weeks of quiet desperation and a dearth of viewings before they’re prepared to accept reality, so Zoopla is expecting more price cuts for properties that are already on the market in the first three months of the year – and into the spring.”