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cashinmattress

House Price Rant

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House Price Rant

Pressure can do funny things. Just ask Steve Morgan.

The chairman and biggest shareholder of housebuilder Redrow has let rip at the company’s AGM on Thursday morning, accusing the government and regulators of deliberately suppressing housing demand at the very time a chronic housing shortage is laying the foundations for the next boom and bust cycle.

If only every annual shareholder meeting could be like this.

Warning: long, but entertaining.

(emphasis ours)

In recent months there has been much scaremongering in the media about the state of the housing market. Although the market has undoubtedly been affected by the current economic climate, underlying demand remains strong as there are tens, if not hundreds of thousands of people wanting to buy their first home. Private sector rents are rising as first time buyers are being stifled by the chronic shortage and affordability of mortgages. Most people are left with little choice but to go into the private rented sector or live with their parents. Every week we are forced to turn away potential purchasers simply because they do not have a deposit of 25% or more; people with excellent jobs who under normal circumstances would easily qualify for a mortgage.

For generations 95% mortgages have been the norm. Indeed the vast majority of existing home owners started out buying their first home with a mortgage of this size. Yet the current generation of first time buyers are being denied the opportunity that their parents and grandparents took for granted, simply because they are unable to secure an affordable mortgage with a modest deposit. As a direct consequence of this worsening mortgage famine, the average age of an unassisted first time buyer is now 37 and rising rapidly.

The demand for new homes remains strong, but with only six lenders now covering over 90% of the lending market, the mortgages to meet that demand are not available. In the last three years the number of mortgage products available to buyers with deposits of 5% or less has fallen from 1,224 to just 33. The situation could get a whole lot worse if the FSA’s proposed changes in its Mortgage Market Review come to fruition.

The case for resolving the mortgage crisis is compelling as we cannot have a buoyant UK economy without a healthy housing market. Each new home creates around six jobs, both directly and indirectly. Building an extra 100,000 new homes per annum to meet the country’s desperate needs will create around 600,000 new British jobs and all the tax revenues that go with it.

The Coalition Government has stated publicly that it is committed to an increase in the construction of much needed new homes and we strongly welcome that commitment. However this will simply not happen without an adequate and fairly priced supply of mortgages. At the very time when the country is in a housing crisis, the house building industry is working at little over 50% of the output of just a few years ago.

Our message to the Government is simple: the regulators are going too far and the medicine risks killing the patient. Deliberately suppressing housing demand at the very time that the country has a chronic housing shortage is laying the foundations for the next boom/bust cycle. The way to end the cycle of boom and bust is to increase the supply of new homes to meet the demand by freeing up the supply of affordable mortgages.

Right, there’s quite a bit to pick up on.

First, Morgan’s claim that 95 per cent mortgages have been the norm for generations? Is that really the case? Is it unfair to ask for deposits of 25 per cent or more and is it really the case that we can’t have a health economy without a buoyant housing market? As for the idea that the government and regulators are deliberately suppressing demand, that seems to be the stuff of fantasy.

Still we don’t have thousands of houses to sell.

___________________________

Meanwhile, the latest Halifax house price survey is out and it shows prices rising 1.8 per cent in October after falling 3.7 per cent in September.

However, it also shows that prices in the three months to October were 1.2 per cent lower than in the preceding three months. And that’s the figure economists are focusing on.

Howard Archer of IHS Global Insight:

As was the case and as we stressed when the Halifax reported that house prices slumped by 3.7% in September, housing market data can be volatile on a month-to-month basis and from survey to survey, so it is best not to attach too much importance to one piece of data but to try and take an overall view from the available evidence. Indeed, Halifax itself highlighted the three-month trend, which showed house prices falling by 1.2% in the three months to October compared to the three months to July.

To further highlight this fact, the Halifax’s data follow on from the Nationwide reporting that house prices fell 0.7% month-on-month in October, having been flat in September.

The year-on-year rise in house prices slowed to 1.4% in October from 3.1% in September and a peak of 10.5% in April on the Nationwide measure. We would argue that the Halifax data showing house prices rising by 1.8% in October after slumping by 3.7% in September is not inconsistent with our view that house prices will trend down gradually overall through the final months of 2010 and during 2011 rather than crash, to lose around 10% of their value. Having said that, there may well be significant volatility around an overall gradually declining trend.

_______________________

Update:

Some further comment courtesy of BarCap:

The Halifax house price index increased by a firm 1.8% m/m in October, after the largest fall in its history in September of 3.7% m/m. Prices were up 1.2% on the headline annual measure (3mma/y) from 2.6% in September. The lender, however, recognized the volatile picture of monthly house price changes it has reported throughout 2010 and pointed to its headline measure as depicting a more reliable picture. Earlier this month, the Nationwide house price index reported a 0.7% m/m fall in house prices and a 1.4% y/y increase.

Owing to the volatility of these series from month to month, the MPC prefers to use the average of the 3m/3m rates from the Nationwide and Halifax indices as its measure of house price inflation. This measure fell by 1.3% in October, from a decrease of 0.9% in September…… We do not think these data will have any significant effect on the MPC’s decisions today, however, and expect monetary policy to be unchanged.

Hehe.

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  • 146 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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