The Sun is shining in more senses than one. Not only are we enjoying something of an Indian summer, the housing market too is benefiting from an apparently blooming autumn.
The latest report, and perhaps the most significant of the recent run of surveys, was published by the Nationwide yesterday. It showed a 1.3% rise in house prices in October; that’s the highest monthly rise since the summer of 2004.
But the Nationwide figures do not come out on a limb. Rightmove recorded a 0.5% rise last month, and said at the time the report was published: “A degree of optimism has returned to the market.” And “some commentators expected house prices to actually fall significantly as part of a downward cycle of the property market. However, this has not happened, giving buyers the confidence to re-enter the property market as the threat of losing money on a property purchase has receded.”
The actual data from Hometrack was not so promising. It had prices falling by 0.1%- the 15th successive monthly drop. But the sentiments it expressed were decidedly upbeat. “Activity has increased by 5.5% (4.1% in August’s survey). As more transactions are occurring in the market, this suggests that buyer confidence is improving.”
Then there’s mortgage lending. Both the Bank of England and British Banking figures seem to agree. The last month or so has seen a rise in mortgage lending. Our Central Bank’s data showed, for example, that the number of mortgages approved for house purchases during the month hit a 15 month high.
Finally there’s RICS. The closely watched index from the Royal Institute Of Chartered Surveyors has been steadily improving over the last few months. It’s still negative, with the balance between its members saying house prices had risen and those saying it had fallen now - 21, but that’s the best score since August last year.
No one is saying that we are about to see a return to the heady time of the first few years of this decade. The Nationwide, for example, tempered its report with a note of caution; “Housing market affordability” it says, “remains stretched. Low inflation and credible, transparent monetary policy has led to lower debt servicing costs which might mean that we should expect a higher ‘normal’ level of house prices in relation to earnings than in the past. However, affordability and overall debt levels will still have to adust to more comfortable levels before we can expect any widespread increase in demand and thus prices.” The Nationwide also put the rise down to the delayed effect of the summer lowering of the rate of interest, suggesting it’s a one off improvement. And finally, that inflation fears mean that further rate cuts are unlikely.
But for all that, many of the experts are proclaiming the recent data as evidence of the much-heralded soft landing, and virtual proof there will be no crash.
Capital Economics, on the other hand said that a “sustained recovery in the market seems hard to reconcile with other reports of falling consumer confidence, rising unemployment and a marked weakening in unsecured personal sector borrowing.”
In fact the economics forecasting group has suggested that the recent rises are portraying a distorted picture. “Its possible,” it said yesterday,” that transaction-based indices overstate house price rises, since, by capturing only the prices of properties changing hands, they will not adequately reflect developments in more depressed segments of the market.”
Capital Economics reckons the RICS survey provides a more balance picture.
As for our view. We are a little confused by the Nationwide comment that low inflation has created lower debt services costs. As we have argued many times before, this might be the case in the short term - but not in the longer term.
The fact is average house prices in proportion to average wages are too high, and are likely to remain so for some time. Any shock, or just the gradual realization that mortgages don’t get cheaper over time as prices rise, like they used to, could tip the market
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