Posts Tagged ‘lloyds tsb’

House prices are up again. The data provides overwhelming evidence. But what is especially compelling is the latest survey from the Royal Institution of Chartered Surveyors, or RICS. Its residential survey market index it not merely a good guide to the UK housing market, it is a good guide to the UK economy. The occasions in recent years when the index has moved from negative to positive has often preceded economic recovery. Occasions when it has gone from positive to negative, has often preceded a recession – or at least a sharp fall in growth. The index is now unequivocally in positive territory.

Can it last? Do we want it to?

It was unanimous. For the month of June, Hometrack, Nationwide and Halifax all recorded rises in house prices.
Hometrack had prices rising by 0.4 per cent in the month compared to May. It said: “The momentum in house price growth over the first half of the year has been driven by a widening imbalance between supply and demand…Two factors are adding to the pressure on supply – first is an increase in numbers of first time buyers who add to demand but have no property to sell. Secondly, existing owners are looking to secure a property to buy before putting their homes on the market.”

The Nationwide had prices rising by 0.3 per cent in June, and year on year recorded a 1.9 per cent rise. Robert Gardner, Nationwide’s chief economist, said: “Construction data point to a further decline in building activity in recent quarters from already depressed levels. For example, in Q1 2013 housing completions in England were down 8 per cent compared to the same period of 2012 and around 40 per cent below the average number of quarterly completions in 2007.”

The Halifax House Price Index recorded a 0.6 per cent month rise, and a 3.7 per cent year on year rise. Martin Ellis, housing economist at Lloyds TSB, said: “Improved confidence in both the housing market and the economy, combined with a shortage of properties available for sale, appear to be pushing up house prices. The Funding for Lending Scheme is also likely to be boosting the market by helping to reduce mortgage rates. There are also early indications that the Help to Buy: equity loan scheme may be stimulating demand. Despite these signs of improvement in the market, the still subdued economic background and weak income growth are expected to remain significant constraints on housing demand and activity during the second half of 2013.”

Finally there is RICS. Its survey found that 21 per cent more Chartered Surveyors reported that prices rose rather than fell in June, making this the strongest month for house prices since January 2010.

What is especially interesting, however, is what surveyors polled by RICS think might happen next. A net balance of 45 per cent more respondents (from 36 per cent in May) predicted that sales will increase. This is the most positive reading in this series’ history, which began in April 1999.

So there you have it, the RICS index suggests the market in May was the strongest since January 2010. As for expectations of sales, it is the strongest ever, although admittedly in this case forever only goes back to 1999.

There are snags. First off, house prices are so very expensive. According to Halifax data, the ratio of average house prices to the national earnings average for men is currently 4.58. Okay, it has been higher – 5.83 in July 2007, but in January 2000 the ratio was 3.37. In March 1989, just before house prices crashed, the ratio was 4.97. According to OECD data, the ratio of house prices to income is 22 per cent over the long term average, and the ratio of average price to rent is 31 per cent over the national average.

The second snag relates to wages. In April of this year inflation –as measured by the CP index – was 2.4 per cent. Average wages, including bonuses, rose by 1.3 per cent. In fact inflation has been greater than rises in wages every month since May 2010. According to the ONS, household annual income has fallen by £1,200 in real terms since 2007/08 or at least equivalised income has, which is a measure that attempts to weight data to balance out the fact that some households are much bigger than others.

So there you have it, households are struggling, as indeed they have been for a long time, yet house prices are rising. Working out why is not rocket science; it is because interest rates are at record lows; it is because of the government’s own schemes to kick life into the market, and it is because of lack of supply, which is not helped by planning regulations that need reforming.

Maybe there is another factor at play, too. It is as if there is something hardwired into the British psyche – an inbuilt belief that house prices only ever rise; that your home is an investment; that there is this thing called a housing ladder upon which you need to climb, and ascend as soon as possible. All of these assumptions are open to debate, but in the UK they are rarely even questioned. Such attitudes can become self-fulfilling.

In the short run, rising house prices are good for the economy. But we have been here before haven’t we? We were here in 2007. The truth is that the UK boom of the mid noughties, and recent rises in spending have been fuelled by falling savings.

And that brings us the nub of the problem. UK households need to save more – that is self-evident. If we secure a recovery by reducing savings, this is simply storing up problems for later. Equally, if Brits do save more, consumption falls, and – all else being equal – GDP falls.

But supposing savings are used to fund investment. And remember, the UK badly needs more investment. Such investment will in part solve one of the UK biggest problems of all: poor productivity. Greater savings leading to greater investment could create an economic recovery that is sustainable. Alas instead, savings seem to fund credit for the mortgage industry. Instead of more investment, we get higher house prices.

It is a vicious circle, and – as far as the UK is concerned – it really is vicious. So what are the solutions? There are several: a falling pound, or investment funded by QE may top the list.

© Investment & Business News 2013

Not just one report, but three. And not just one month, but three. For the third month running, the Halifax housing survey, Nationwide and Hometrack all had house prices rising. In April Halifax recorded a 1.3 per cent rise over the previous three months – it was the fifth time in a row it had recorded a rise.

The Nationwide had prices rising by 1.1 per cent.

As for year on year, the Nationwide had prices rising 0.9 per cent per cent; the Halifax by 2.0 per cent.

The trend has been clear of late, house prices are enjoying something of a good spell. The reason is just as clear, it’s funding for lending. The “help to buy” scheme will surely help.

You may recall that during the bubble years and right up to 2008, Halifax reports on the UK housing market were just a tad on the upbeat side. But then Halifax but was a part of HBOS back then, and HBOS was a little on the optimistic side.

It is not like that now. Even when the data says prices rose, Halifax reports strike a distinctly downbeat note.

Take this month for example. Martin Ellis, housing economist for Lloyds TSB – the company behind the Halifax surveys these days – said: “Market activity, however, remains subdued by historical standards with the number of mortgage approvals for house purchases – a leading indicator of completed house sales – easing slightly in the first quarter of 2013, according to the latest industry-wide figures…Weak income growth and continuing below-trend economic growth are likely to remain significant constraints on housing demand during the remainder of 2013.”

Meanwhile data from the Council of Mortgage Lenders revealed that Q1 of this year saw a fall in buy-to-let lending. In total £4.2 billion across 33,500 mortgages was advanced to buy-to-let landlords in the first quarter of 2013. This compares with £4.6 billion the previous quarter. Then again, in Q1 2011 buy-to-let lending was £3.7 billion.

Matthew Pointon, Property Economist at Capital Economics, said: “After a shaky start to 2013, lending to BTL landlords is likely to expand over the remainder of the year. But the increase will be modest.”

© Investment & Business News 2013

According to data from Lloyds TSB, the sales of homes worth over one million pounds hit 7,397 in 2012, which was the highest level since 2007. Is this a sign of a recovering economy or is it a case of economics for the one per cent?

Nobel Laureate Paul Krugman excelled himself this time. In his latest column for the ‘New York Times’, ‘The one per cent’s Solution’, he said: “The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top one per cent wants becomes what economic science says we must do.”

He continued: “The years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers. The one per cent may not actually want a weak economy, but they’re doing well enough to indulge their prejudices.”

And finally: “We have a policy of the one per cent, by the one per cent, for the one per cent.”

Do you agree with that? Or is Paul Krugman getting a bit extreme?

To change the mood a little, Lloyds TSB says: “The total number of sales of properties that cost at least £1 million in Great Britain rose by 2 per cent from 7,270 in 2011 to 7,397 in 2012.” By the way, in case you are interested, in 2007 sales of one million pound plus houses hit 8,233.

The growth in sales of these more expensive homes has been skewered towards London. Lloyds TSB said: “London and the South East continued to account for the overwhelming majority (85 per cent) of all million pound sales in Great Britain in 2012. Million pound sales are a much greater proportion of the market in London than elsewhere in Britain, representing 5.6 per cent of all sales in the capital in 2012. Scotland (14 per cent), the East Midlands (12 per cent) and Greater London (6 per cent) were the only regions to see a rise between 2011 and 2012.”

It continued: “The remaining eight regions in Great Britain recorded a fall in million pound sales in 2012. Wales saw the biggest drop in million pound sales (-71 per cent), followed by the north east (-40 per cent).”

So how do we interpret these figures? Are they a sign of Krugman’s theory about an economy that only seems to be benefitting the one per cent – although in London, of course, one million pounds for a home is not that out of the way. Alternatively, are the figures just indicative of the London/South East divide with the rest of the country? Or maybe, just maybe, it is a sign that the housing market is turning; after all past housing market booms have begun with the more expensive properties.

© Investment & Business News 2013

The latest data from the Nationwide, Hometrack and Halifax on UK house prices was out last week. And for the second time in three months they were unanimous. They all had month on month house prices falling: Hometrack by 0.1 per cent, Nationwide by 0.4 per cent, and the Halifax index recorded a 0.4 per cent drop in September. It has been frustrating over the last couple of years observing these housing surveys. Each month they have seemed to contradict each other. But all three reported falls in July, and in August two of the three reported falls (Nationwide had prices rising), and in September this rare agreement thing has happened again.

Perhaps more to the point, on an annual basis all three had prices falling too: Hometrack by 0.5 per cent, Nationwide by 1.4 per cent and Halifax by 1.2 per cent.

Mind you, they might have prices falling but house prices are not exactly crashing.

Meanwhile, politicians are busy trying to dream up ideas to try to get prices up. Nick Clegg wants to use money sitting in pension schemes to fund deposits, while Ed Balls has mooted the idea of using income from licensing 4G to fund a cut in stamp duty.

But, as is their wont, while on one hand the government is trying to dream up ideas to kick start the property market – such as funding for lending – is the other hand is also busy coming up with ideas to derail the market. According to analysis from Morgan Stanley, banks could be forced to find an extra £22bn in capital to fund changes to the way in which mortgages are risk weighted. The issue is complicated. Under the Basel rules, banks are required to hold a certain amount of capital. And under impending changes they will need to maintain 10 per cent capital ratios – other than mortgages, that is. Mortgages are seen as different, and carry a much lower risk rating than other asset classes. And who chooses this risk rating? Why the banks themselves, of course. It turns out that some banks have put such a low risk rating on their mortgage assets that, in fact, they can achieve leverage of near 100 to one – or one per cent capital.

It is not difficult to understand why the regulator is worried about this. This may seem like a radical concept, but some might say that it should not be down to the banks to risk assess their own assets.

So far then it all makes sense. Banks should not be allowed to risk assess their assets, and should not be allowed leverage of around 100:1 on some mortgage debt. It is just that if the regulators’ perfectly reasonable reservations were taken into account, bank mortgage lending might crash faster than you can say ‘property snakes and ladders’.

And that brings us to the baby boomers – you know those people who are due to swell the ranks of the retired to record levels. According to research from Lloyds Bank, just over half (51 per cent) of potential home movers are looking to ‘downsize’ within the next three years, compared to just a fifth (22 per cent) looking to trade up to a larger property. It is not that rare for home owners reaching retirement to downsize. The Lloyds TSB report, however, found that the reasons for downsizing have broadened in these tough economic times. Whilst 59 per cent want to move to a smaller property that is better suited to their circumstances, a third of potential downsizers would like to move to a smaller property to help reduce bills. Almost two fifths would like to free up equity in the property, and almost one in three said they want to downsize to help support retirement plans. A fifth of those considering downsizing are looking to trade down earlier than expected, with the majority citing financial concerns as the key driver.

So there you have it. The government can try to nudge us all into saving more, but as the UK enters the demographic moment of dread – the retirement of baby boomers – we are set to see a rush of people downsizing, creating an influx of supply onto the property market.

©2012 Investment and Business News.

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