The recent jump in mortgage rates led to house prices becoming overvalued by 13% at the end of 2023, Zoopla said, but this has since fallen to 8% as of the first quarter of 2024.
Zoopla suggests this over-valuation will disappear, assuming that house prices rise 1.5% and mortgage rates remain at 4.5%.
Looking at market activity in the first four weeks of May, Zoopla said homebuyers are largely shrugging off the election with new sales agreed 8% higher, demand up 6% and a fifth more homes for sale than a year ago.
Overall stock for sale is also up 19%, suggesting some could be overvalued.
There are signs that market activity is beginning to seasonally slow, Zoopla claims.
Sales agreed were down slightly month on month across all regions, led by the North East (-6%) and West Midlands (-5%).
The report found that the annual rate of UK house price inflation is now static at 0% in May 2024, up from a 1.3% drop in November 2023 and down from a 1.6% rise a year ago.
The average UK house price as of May 2024 was £264,900, the report suggests.
House prices continue to register annual price falls across southern England at a slowing rate, Zoopla said.
Price falls are currently greatest in the Eastern region (-1.4%) and South East (-1%), with Canterbury in Kent topping the list with the biggest price fall (-4.1%). Prices are rising by up to 3.3% in Northern Ireland and 1.5% in the North West region, with Sunderland experiencing a 5.2% price increase.
Overall, UK house prices are on track to be 1.5% higher at the end of 2024 as consecutive monthly price falls over the last six months of 2023 ‘drop out’ of the annual growth rate, according to the report.
Zoopla said interest rates will be key to how the market performs for the rest of the year.
The report said: “Any reductions in the base rate over the summer and into the autumn will deliver a boost to market sentiment and sales activity, even though the impact on fixed rate mortgages will likely be more muted.
“Based on City forecasts for base rates, we expect mortgage rates to remain in the 4-4.5% range going into 2024. This is sufficient to support sales volumes and low, single digit levels of house price inflation.”
Commenting on the report, Nathan Emerson, chief executive of Propertymark, said: “It’s been a positive year so far for the housing market, and it’s extremely upbeat to see confidence returning, despite some of the challenges people have faced such as high inflation and interest rates.
“With the General Election now less than a week away, we are keen to see any incoming Government lay down their full plans to further support current homeowners on aspects such as energy efficiency, but also to fully get behind key groups like first-time buyers as they set out on their property journey.”
Tom Bill, head of UK residential research at Knight Frank, added: “House prices have been kept in check this Spring as buyers hesitate due to the election and the uncertain timing of the first rate cut since March 2020.
"A new Government will add a dimension of political stability when the autumn market starts in September and even if the bank rate is not lower by then, a cut will be imminent.
"Given that mortgage rates will steadily reduce as services inflation comes under control, we expect UK house prices to rise by 3% this year.”
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"UK house prices are 8% overvalued", says company whose automated valuation system is like the broken clock that shows the time with pristine accuracy, but only twice a day?
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