By Michael Baxter 30 Sep 2010 [0 Comments | 1,058 views]
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The latest housing survey from the Nationwide was out this morning. What with reports from Hometrack, and the Bank of England’s latest news on lending to individuals, it has been a busy few days for gauging the strength of the UK housing market. What does the data say?
Actually, the Nationwide data didn’t say much at all. House prices were up 0.1 per cent in August, after falling in the two previous months. The building society now has annual house price inflation running at 3.1 per cent, the lowest annual rate since November last year. The three-month rate has now turned negative, that’s the first time since May last year. Martin Gahbauer, Nationwide’s Chief Economist said that: “Although the three-month rate of change has turned negative, at this stage it is not pointing to a significant pace of decline in property values. During the 2008 downturn in house prices, the three-month rate of change dropped as low as -5.5 per cent, well below the current level of -0.9 per cent.”
As for what will happen next, Mr Gahbauer said: “Where house prices go next will depend on whether the strong flow of new property onto the market continues into the autumn, and on the extent to which existing sellers are willing to compromise on their asking price in order to make a quicker sale.”
As for Hometrack, its report was both more and less bullish at the same time. It had house prices down 0.4 per cent in August; that was the third successive month of falls. Perhaps more significantly, there was a 2.9 per cent drop in the number of new buyers registering with estate agents, but a 1.2 per cent increase in property listings. In fact, over the last three months, the volume of buyers registering with agents has fallen by 6.5%.
But despite the rather negative data, Hometrack seems to be keeping its chin up. Richard Donnell, Director of Research at Hometrack said: “Talk of a double dip, with the implication being that the market will see double digit house price falls, is over-done despite the weak outlook for demand. We expect a slowdown in the volume of homes coming to the market to limit the scale of absolute price falls over the next 12 months.”
It all boils down to this. Demand and supply are both incredibly low. For a while last year, and surprisingly, the very low level of new demand was actually higher than the even lower level of new supply. As a result, house prices went up, even in a recession.
With variables like that, just tiny changes can hit prices quite hard.
According to the latest Bank of England lending to individuals data, the volume of mortgage lending for house purchases fell by 2 per cent in August. This figure has been negative for four successive months, and the annual rate is now negative 10.8 per cent.
So it’s clear, demand is weak, very weak.
But peek a little closer, and we see a more interesting development.
According to the Bank of England, re-mortgaging activity has been picking up. In fact, re-mortgages approvals were up 2.9 per cent in the month, after rising 5.5 per cent the month before. This takes the year on year rate to plus 2 per cent, and that’s the first time year on year re-mortgages have increased in 30 months.
Maybe we only need to look at the Nationwide report to see why. Mr Gahbauer said: “One consequence of the increasing share of part-time employment is that average earnings growth has remained weak, falling well below the rate of inflation.”
In other words, we are getting worse off.
The Nationwide man also said: “Given the combination of a still elevated unemployment rate and the upcoming public sector wage freezes, it seems unlikely that earnings growth will accelerate much in the near future.”
“Unlikely.” It is unlikely, all right. Next year’s public sector cuts will mean a sharp rise in jobless numbers. People who lose their jobs may or may not find work in the private sector quickly, but one thing is for sure, the pressure on wages will be downwards. But the hike in VAT will mean prices will go up. We are quite sure that by this time next year, your average household’s discretionary disposable income, that’s income after tax and spending on things we have no control over, will have fallen in real terms.
We have also heard anecdotal evidence that some people are selling their properties, and either downsizing or renting, to help make ends meet. For many people, making ends meet is a devil of a job. And it is especially hard for people on average income. Households which have two income earners on average wages are entitled to very little. The costs of dentists; of funding kids through university, whose entitlement to student loans is reduced due to means testing; make it all but impossible to save. Some will be forced to borrow. Some will try and top up their mortgage, others will sell.
