If you are a regular reader here, you will know that Investment and Business News has long considered the Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS) as just about the best barometer of the UK housing market – and to a lesser extent the UK economy – out there. For example, in August 2007 the RICS headline index went negative and stayed there for two years. The index moved back into positive territory in August 2009, but the move was not convincing and by July 2010 it was negative again. The index is in positive territory again, but this time it feels a little more permanent; a little more meaningful. It may be the best evidence yet that the UK housing market and the economy are in the best shape since the recession of 2008.

The survey asks: “How have average prices changed over the last 3 months? (down/same/up)”. The percentage number who say down is subtracted from the percentage number who said up, and the balance forms the RICS headline index.

In April the index went positive – just, hitting plus 1. It was skin of the teeth positive, but nonetheless it was the first positive reading since June 2010. The index rose in May, and again in June. This morning data for July was out, and the Index rose to its highest level since 2006, just topping the plus 35 reading posted in November 2009.



Another index, tracking new buyer enquiries, rose to plus 53.

RICS said: “Government measures to stimulate the market (including both Funding for Lending and Help-to-Buy) appear to be part of the reason for the pick-up in activity according to survey respondents. The former, in particular, has played a role in helping to improve mortgage availability; the survey suggests that surveyors perceive there has been a rise in typical loan-to-value ratios on offer for first time buyers seeking a mortgage. In July, this may have risen to 83.6 per cent, which is two percentage points higher than at the end of last year.”

This is all positive stuff. Just don’t forget that real wages are still falling; they have been falling every month since May 2010. It is hard to see how the surge in housing activity can be sustained when average workers are getting worse off

If you want to be ultra-bullish, you might want to argue that the surge in house prices will give consumers more confidence to spend, leading to more demand, more jobs and then higher wages, making the recovery in the housing market sustainable. In other words, recovery based on hot air can create a recovery based on something real.

If you want to be cynical, you can say: “But isn’t that what happened in the early and mid noughties, and didn’t all end in tears?”

© Investment & Business News 2013