Posts Tagged ‘Royal Institution of Chartered Surveyors’


George Osborne recently tried to assure us. “I don’t think in the current environment a house price bubble is going to emerge in 18 months or three years,” or so he told parliament this week. The Bank of England governor promises us he won’t let it happen – no bubble here, thank you, not today, tomorrow, or for as long as he is boss. Yet a poll among economists found that around half reckon a new bubble in the market is likely. The latest survey from the Royal Institution of Chartered Surveyors (RICS) may even provide evidence that such a bubble is underway right now. Why then, do we see such complacency? And how dangerous is it?

Actually the no bubble here argument seems to come from two different sides of the spectrum of economic thought. There are those, such as Capital Economics, who tend to be on the bearish side. House prices won’t shoot up in price, it suggests, because prospective new home owners can’t afford higher prices, and real wages are, after all, still falling. From the other side of the spectrum seems to come the view that there is no bubble because the very word bubble seems to suggest something negative. It may be true to say that this other side of the spectrum sees rising house prices as a good thing.

Okay, let’s look at the surveys. The latest Residential Market Survey from RICS may or may not provide evidence of a bubble but it certainly seems to provide evidence of a boom. The headline index, produced by taking the percentage number of surveyors who said prices fell in their region from the percentage number who said they rose, hit plus 40 – that’s for the month of August. It was the highest reading for the index since November 2006. The survey also found a rise in supply as more properties come on the market, but that the rise in demand was even greater.

As has been pointed out here before, the RICS index is not only a good guide to the housing market, it seems to provide a good barometer reading of the UK economy. The trajectory of history of this chart, and its correlation with the GDP a few months later, suggests the UK economy is set to see growth accelerate.

Now let’s turn to the other survey. This one comes courtesy of Reuters. A total of 29 economists were surveyed and asked about the prospects of another housing bubble. Nine said the chances are small, seven said the chances were even; 11 said likely; two said very likely.

Mark Carney suggests, however, that he won’t let it happen. He recently told the ‘Daily Mail’: “I saw the boom-bust cycle in the housing sector, the damage it can do, the length of time it took to repair.” These are encouraging words. He is saying trust me. Just bear in mind however that a housing bubble appears to have developed in Canada during his time as boss of the country’s central bank.

George Osborne turned his attention to the topic. On the subject of loan to value ratios, and the way in which first time buyers have had to find such enormous deposits in recent years, he said: “This change is not something we should welcome. It is both a market failure and a social problem – imagine if you’d had to find twice as big a deposit for your first home. 90 per cent and 95 per cent LTV mortgages are not exotic weapons of financial mass destruction. They are a regular part of a healthy mortgage market and an aspirational society.”

Here are two observations for you to ponder.

Observation number one is the British psyche. It is as if it is hardwired into the DNA of the British public. They are driven by fear to jump on the housing ladder, driven by more fear to rise up it, yet without questioning the view they believe that when the equity in their homes rises, they are better off, have more wealth, meaning they don’t need to save so much for their retirement. In short the UK housing market is prone to bubbles. The UK economy can often boom when house prices rise, and the reason is deep rooted in the British psyche. Whether this is good thing or not is open to debate. However, this point about the psychology does not seem to be understood by many economists, the markets or the government.

Observation number two: The new governor of India’s central bank Raghuram G Rajan used to be the chief economist of the IMF. Between his stint at the IMF and his new role in India, he wrote a book called ‘Fault Lines’. In it he suggested that rising house prices was the way in which democratically elected government were able to compensate their electorate for the fact that their wages had only risen very modestly. Mr Rajan was not suggesting a conspiracy; merely that the economic fix found by authorities proved to be the path of least resistance.

A boom in which the UK economy becomes more dynamic, maybe one in which QE funds investment into infrastructure, entrepreneurs, and education, creating a work force better equipped to cope with the innovation age we now live in, would be a wonderful thing. A boom based on rising house prices, however, would be a much easier thing to create, so no wonder Mr Osborne is so keen on the idea.

© Investment & Business News 2013


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


George is blowing a bubble, and no this is not a reference to the royal baby, rather to the right royal mess George Osborne may be creating with his Help to Buy scheme. The list of those accusing our chancellor of creating a new housing bubble is getting longer. But then our George says he is just trying to create a construction boom, and if he can do that, this will surely be a good thing. So which one is it: construction boom or housing bubble?

Help to Buy comes in many guises. New Buy, was a scheme aimed at first time buyers and provided assistance solely if they bought a new home. So the idea behind the scheme was actually quite laudable. But the latest iteration is not like that. This is destined to help people who can only rustle up say a 5 per cent mortgage.

Home builders say that the latest idea will encourage them to build more, but then, frankly they would say that wouldn’t they? What house builders really want, what they really really want is for house prices to go up in value enabling them to build and sell homes for a very substantial profit on land which they have already paid for.

This week credit ratings agency Fitch stated: “The scheme, [that’s Help to Buy] along with the phase that began in April [New Buy] could have an impact on sovereign gross debt and its dynamics, particularly if there is strong pent-up demand as the tighter loan-to-value ratios that have prevailed since 2008 are relaxed.” It continued: “For house builders the main benefit from the second phase of the scheme will come from rising house prices, rather than increased volumes.”

A couple of weeks ago Vince Cable warned that a housing bubble was a danger, and the IMF made similar warnings before that.

Oh why, oh why won’t George listen?

It is just that according to a housing construction survey from the Royal Institution of Chartered Surveyors (RICS): “59 per cent more respondents predicting workloads continuing to rise rather than fall once more.” According to recent data from the ONS, construction activity grew by 0.9 per cent in Q2. The latest Purchasing Managers’ Index from Markit/CIPS for construction rose to its highest level since June 2010.

This is good stuff. Apparently, or so says RICS, every pound spent on construction leads to £3 more economic growth, so that is a good thing. On the other hand, to put the construction boom in perspective: in Q1 2013 construction output was at its lowest level since Q1 2001.

Is George blowing bubbles or creating a construction boom? The most likely consequence is that this is doing both, and that is both good and bad.

© Investment & Business News 2013

This morning the latest stats on the UK’s economic performance for the second quarter of this year were out. And on this occasion the ONS revealed a pretty good set of numbers. This is what they say.

In Q2 the UK economy expanded by 0.6 per cent, after growing 0.3 per cent in Q1. Year on year growth is now 1.4 per cent. Okay, growth of 1.4 per cent is way below what the UK needs, and what it used to enjoy, but it is the best performance for some time, and that needs to be celebrated.

Okay, the UK economy’s total output is still some 3.3 per cent below the 2008 peak, so the downturn, or if want to use more emotive words the depression, still continues. It seems likely that the UK will see total output continue to be less than the 2008 peak until either very late next year or in 2015, making this easily the longest downturn ever recorded.

Some point to debt levels in the UK, and say we are kidding ourselves. The truth is that if you take total UK debt – that’s government, household, corporate, and financial – the UK is one of the more indebted countries in the world. Of the world’s largest developed countries, only Japan has more total debt. Indeed financial debt is still running at some 202 per cent of GDP, which is easily the highest level amongst the world largest developed economies.

Household debt remains too high, and furthermore is expected to rise over the next couple of years. If, because of global forces outside the control of the Bank of England, interest rates rise, households and so-called zombie companies will face a major challenge. For a very bearish view on UK debt, see: The next crisis, by Ann Pettifor    For what might happen to UK households if rates rise, see: What will happen to households as rates rise   For the danger posed by Zombie companies, see: The Zombies are back    And for why rates may rise regardless of what the Bank of England wants, see: The Great Reset 

George Osborne seems to have decreed that house prices will never fall; not on his watch. This may well earn his political party election victory, but is it what the UK needs?

On the other hand there is very real evidence of companies bring their manufacturing back to the UK. See: Can the UK reshore its way back to health? 

The UK doesn’t need a house prices boom, but it does need a housing construction boom. And in this respect there is good news. According to the Royal Institution of Chartered Surveyors (RICS), over the coming twelve months 59 per cent more surveyors who responded to its latest construction survey said that they predict workloads will continue to rise rather than fall. RICS said: “With every pound spent on construction in the UK generating almost three pounds of wider economic growth, this will undoubtedly be seen as good news for UK plc.”

And now return to today’s ONS report. In Q2 there was an upward contribution (0.08 percentage points) from production; with manufacturing increasing by 0.4 per cent following negative growth of 0.2 per cent in Q1 2013. So that is not hot air; that is real. In Q2 2013, output in the construction industry was estimated to have increased by 0.9 per cent compared with Q1 2013. In Q1 2013, construction output was at its lowest level since Q1 2001.

There is still much that can go wrong, and George Osborne is playing with fire with his help to buy scheme, but that does not mean to say that this time around the entire recovery is built on an illusion. This time it feels more real.

© Investment & Business News 2013

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

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

Cynicism can be healthy, but sometimes you just need to acknowledge good news when you see it. Good news on the UK economy is certainly not flowing like a river at high tide, but it has grown from a trickle to something more like a stream.

Take the news out this week. The reading from the latest housing market survey from the Royal Institution of Chartered Surveyors, or RICS, rose from plus one in April to plus five. This index is good at signposting short term future changes in the economy. It went negative in August 2007, for example, many months before the UK fell into recession.

It moved back into positive territory in August 2009, before the UK came out of recession, and it went negative in July 2010, once again providing advance warning of the UK re-entering recession. The index has now been positive for two months, which is an encouraging sign, but then again a reading of plus five is hardly the stuff of a boom.

If you want more evidence of an improving economy, take a look at the latest Purchasing Managers’ Indices, or PMIs. Combined they point to an economy growing at around 0.5 per cent in the second quarter of this year, compared to 0.3 per cent in the previous quarter. That is good, but just like the evidence provided by the RICS Index, it’s a long way short of suggesting boom.

You will find more encouragement if you dig a little deeper, and stare at the innards of the latest PMIs. The manufacturing sector is seeing new orders growth accelerate; no less than three times as many construction firms anticipate a rise in output as those that forecast a reduction. As for services, there is evidence of growing commitment to new business, and sales have now risen for five successive months.

It is clear that house prices are rising, but it is not clear whether this is a good or a bad thing. The last trade data was encouraging, UK exports to China rose by 11 per cent in the most recent three month period for which we have data. Exports to the US rose by 7 per cent. Our main trading partner, the euro area, is stuck in economic depression, but the UK is at last seeing exports to areas further afield rise, and that is something to be celebrated.

There is even good news on our energy – at least it is good news if you are a believer in shale gas.

For the best news, however, look West. Since the UK economy tends to follow the US, but with a time lag, and data on the US economy really does provide reason for cheer.

The doubts relate to zombies, wages and productivity. There is a film out at the moment about zombies called World War Z, starring Brad Pitt. In the economy the term zombies relates to companies, or indeed households, that are unable to move forward. In the case of companies, the solution may lie with bankruptcy creating space for other companies to grow into.

It is possible that record low interest rates are propping up firms that should be allowed to fail, and that the UK may be repeating the errors made by Japan, 20 years or so ago. For more on that, see: Creative Destruction – an entry in a new, and still growing, Investment and Business News directory:

Strap yourself in. The next few months will tell us more.

© Investment & Business News 2013