By Michael Baxter 14 Sep 2010 [1 Comment | 1,153 views]
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Of all the reports looking into house prices, the survey from the Royal Institution of Chartered Surveyors (RICS) is the big one. This morning the latest survey was out, and once again it revealed fascinating findings.
Of course, house prices are set to tumble, or so suggests the report, but it also came with just a hint of positivity.
Nothing is more crucial to the double-dip or not-double-dip debate than the fate of house prices. In the UK and the US, house prices matter. During the good old days of the booming economy, it was argued by many that house prices will only fall if we suffer a recession. They got cause and effect the wrong way round. In fact, falling house prices may have been the main cause of the recession.
Central bankers, and many economists, totally failed to grasp how house prices affect consumers. It wasn’t rocket science. If house prices fall, consumers will feel less confident about putting it on the plastic and will save more. Maybe the fact that this relationship was so painfully obvious was the problem. Central and non-central bankers alike seem to be good at rocket science, but not so good when they have to describe human nature. And maybe, on their six figures salaries, were a tad out of touch with how people on ordinary salaries think.
Anyway, that aside, this column’s favourite indicator for the UK housing market is the monthly report from RICS. Thirty-two per cent more chartered surveyors reported prices falling rather than rising in August – the biggest negative reading since May 2009.
As you know, the RICS headline index is a good barometer. If it is negative, then you can be sure it is only a matter of time before the negative trend is reflected by the likes of the Nationwide and Halifax.
But what really makes the RICS report interesting is all the other stuff, for example its indices relating to new enquiries and new instructions.
In August the index tracking new enquiries, which corresponds to demand, fell from minus 10 in July to minus 17. Meanwhile, the index tracking new instructions has now been in positive territory all year. In August the index stood at plus 12.
Maybe a better way to look at it is to trace the difference between the two indices. Back in February last year, the difference between the RICS new enquiries index (23) and the new instructions index (minus 19) was plus 42. It peaked three months later with a difference of 70. Then it went into steady decline falling to minus 15 in January this year. It carried on falling, dropping to minus 23 in March, improving in April by rising to minus 3, and then falling to minus 43 in July. In August the difference between the two indices was minus 29.
RICS made much of this closing gap. It also found that surveyors are expecting sales to rise. RICS said: “18 per cent more surveyors expect sales to rise over the next three months, up from 8 per cent in July. This rise in sentiment may be attributed to the view that a dip in house prices will begin to tempt more buyers back to the market over the coming months.”
Come on guys. Do you really think that house prices have fallen by an absolutely tiny amount? Are the British public so inherently bullish about house prices, that a fall of 0.5 per cent, followed by 0.9 per cent according to Nationwide, will have the British public rushing to pick up a bargain? Imagine if Debenhams tried that trick: “Hurry while stocks last – 1.4 per cent off every item.”
If sales are really expected to rise, the most likely explanation is that sales are so low, they simply can’t fall any further.
The real test to the housing market will come next year, with the rise in VAT and public sector jobs losses eating into discretionary disposable income.
thanks Michael, great anaylsis as always…
no doubt many more instrutions in September and that losing gap will be seen as a blip in a few months time. From what an agent told me yesterday, there are many fewer viewings. Viewings are one indicator that may just prove a good guide to future price direction.
A few months of this large gap remaining so signifiant, or even getting bigger, could see meaningful price falls working through by January 2011. Interesting times.