It’s a quad trick, or whatever they call the thing that comes after a hat trick. No less than four reports on the UK housing market in May point to prices rising. The latest of these readings from the Royal Institution of Chartered Surveyors (RICS) is perhaps the most encouraging. There is also evidence of recovery in house building. Does the recovery start here?
Five is not a big number. Take the percentage number of surveyors who said house prices rose during a given period, and then subtract from that the percentage number who said they fell. The Royal Institution of Chartered Surveyors pulls out its abacus every month and performs precisely that sum. For May, the number that came out was five. It was the second month in succession that the index produced a reading greater than zero. You would need to rewind the clock to June 2010 to find the previous time the index was in more positive territory.
The RICS housing market survey is a good gauge, not only of the UK housing market, but of the UK economy too. When the index went negative in August 2007, many economic forecasters were dismissing the idea that the UK was set to fall into recession. Perhaps if they had taken more account of the RICS index, their forecasts would have been more accurate, because the UK did indeed enter recession a few months later. The RICS index stayed negative for 24 months, and the UK recession lasted for a similar length of time. The index went positive again in August 2009, again before the UK came out of recession. The index stayed positive for 11 months, before once again entering negative territory. The correlation with the economy – but with a time lag of a few months – is not precise, but it is not a bad fit either.
Looking beyond the RICS headline index, the newly agreed sales balance increased from 21 to 30 and the new buyer enquiries balance rose from 27 to 30. Both indicators have reached 2009 levels. The sales expectations balance at the 3 month horizon increased from 26 to 35, which was the highest reading since May 2009, while the same measure at the 12 month horizon remained stable at 55.
But as ever, the story varies across the UK. RICS put it this way: “There remains considerable regional variation, with prices over the next year expected to increase by 4.1 per cent in London compared to 0.2 per cent in Yorkshire and Humberside.” But even in this regard, RICS had something positive to say, adding: “Nevertheless, given that many parts of the UK are still experiencing house price falls in year on year terms, it is noteworthy that respondents across all of the survey’s regions are now expecting positive price growth over the next 12 months, including Northern Ireland at 0.6 per cent.”
Surveys from Hometrack, Nationwide and Halifax all had prices rising in May too, with Hometrack and the Nationwide recording a 0.3 per cent month on month rise, and the Halifax a 0.4 per cent rise.
There is even good news on house building. The latest PMI from CIPS/Markit tracking construction rose to its highest level in two years, and data from the Home Builders Federation indicated that 4,000 homes have been reserved under help to buy equity loans.
George Osborne has come under a lot of flack for his ideas for stimulating the UK housing market – some of it deserved. Creating an economic recovery by trying to push up house prices, when they are already too high, does feel like a recipe for disaster. At least, his help to buy equity loans scheme is targeted at new builds, however, and in all the criticism many have overlooked this.
The big threat to UK house prices lies with the danger of rising interest rates in the future. You could argue that the Bank of England won’t up rates unless the economy is on a stronger footing. Alas things are not that simple, and forces beyond the control of central banks may lead to higher interest rates later this decade. See: The Great Reset
For the time being, however, the evidence is clear, the UK housing market is growing, and with it, so is the UK economy.
© Investment & Business News 2013