When the Covid-19 pandemic struck the UK one of my first thoughts was that we would finally see some house price falls. A sharp economic decline accompanied by lower employment and real wages seemed set to drive that. This is how I summarised the state of play on March 30th.
I have been contacted by various people over the past few days with different stories but a common theme which is that previously viable and successful businesses are either over or in a lot of trouble. They will hardly be buying. Even more so are those who rent a property as I have been told about rent reductions too if the tenant has been reliable just to keep a stream of income. Now this is personal experience and to some extent anecdote but it paints a picture I think. Those doing well making medical equipment for example are unlikely to have any time to themselves let alone think about property.
At the time the only way looked down to misquote Yazz, and yet this morning we find The Halifax reporting this.
House price growth on strongest run since 2004
I guess that comes under unexpected headlines of 2020 which has turned out to be a very contrary year, to say the least, The detail of The Halifax report is below.
House prices rose by more than 1% in November, adding almost £3,000 to the cost of a typical UK home.
At just over £253,000, the average property price has risen by more than £15,000 since June. In percentage terms that equates to 6.5% – the strongest five-monthly gain since 2004.
They are cherry-picking their measure as a five-monthly gain is hardly a metric but nonetheless it is quite a surge in the circumstances. Also the picture remains the same if we return to more conventional metrics.
On a monthly basis, house prices in November were 1.2% higher than in October
In the latest quarter (September to November) house prices were 3.8% higher than in the
preceding three months (June to August)
House prices in November were 7.6% higher than in the same month a year earlier – the
strongest growth since June 2016
So we have the strongest growth since the Leave vote which itself was supposed to bring house prices lower. Remember the official forecast?
House prices could take an 18% hit over the next two years and there will be an “economic shock” that will increase the cost of mortgages if the UK votes to leave the EU,George Osborne has warned.
The chancellor said he would publish an official analysis next week saying house prices would be lower by at least 10% and up to 18% compared with what is expected if Britain remains in the EU ( The Guardian)
If we look at the official series house prices were on average just under £213,000 in June 2016 and as of September were £244,513. So he must have been expecting quite a boom on top of that! No doubt the official excuse will be the counterfactual although they may struggle to find someone to say it without laughing aloud.
Looking ahead the picture looks bright too.
Mortgage approvals rose in October to the highest level seen in 13 years. The latest Bank of England
figures show the number of mortgages approved to finance house purchases rose by 6% to 97,532. Year-on-year, the October figure was 51% above October 2019.
We had looked at those numbers on the 30th of November.
What has caused this?
Let me open with a different factor which gets underplayed and it is the furlough scheme. Back in January there had been announcements but it was not expected to be as large nor lasting so long.
The Job Retention Scheme launched on 20 April. By midnight on 15 November there were a total of:
9.6m jobs furloughed
1.2m employers furloughing
Total claimed £43bn
The Self-Employment Income Support Scheme opened on 17 August. By midnight on 15 November there were a total of:
Much of it will have gone to people who badly need it but some have been able to save ( partly because more than a few opportunities to spend money have been unavailable) and we have seen the consequence in both the GDP numbers and the money supply ones. From November 30th.
Households’ deposits increased by the largest amount since May in October (£12.3 billion). This follows a £6.6 billion increase in deposits in September, and an average flow between March and June of £17.4 billion a month.
This is a leakage if you can call it that which has also flowed into the housing market.
Next up is the Stamp Duty cut although if we look at it in isolation buyers are in fact worse off.
It is interesting to note that the stamp duty saving of £2,500 on a home costing £250,000 is now far outweighed by the average increase in property prices since July.
We have seen before that such changes are used as a way to borrow more so that the house price change becomes a multiple of the tax cut.
Last but not least has been the role of the Bank of England which has changed since I posted this on the 30th March.
Over recent weeks, the MPC has reduced Bank Rate by 65 basis points, from 0.75% to 0.1%, and introduced a Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME). It has also announced an increase in the stock of asset purchases, financed by the issuance of central bank reserves, by £200 billion to a total of £645 billion.
Whereas as of the end of last week the £645 billion had become £716 billion and rising ( there will be another £1.473 billion today,tomorrow and Wednesday). The new planned total is £895 billion or £875 billion of UK government bonds or Gilts plus the completed £20 billion of Corporate Bonds. I say planned because so far the Bank of England attitude has been to sing along to Luther Vandross.
Oh, my love
A million days in your arms is never too much
I just don’t wanna stop
Too much, never too much, never too much, never too much
You may note the Term Funding Scheme got a boost and surprise, surprise it was badged as being for smaller businesses. Readers have asked me in the past if even this goes into the housing market. Well of £211.1 billion as of the end of October some £78.1 billion is in the Real Estate, professional services and support activities category.
In addition to this being quite extraordinary there is another context. This comes from the fact we are using marginal prices for an average at a time of lower volumes. One group as I have been reminded today will be excluded from this because they cannot sell as at reasonable price and sometimes at any price.
I wonder how they’re accounting for the mostly below average cladding affected flats that are now out of the equation as they cannot be sold. ( @BCLMacro )
The Bank of England view was expressed by its Chief Economist Andy Haldane in the summer of 2016. Note how what is inflation for first-time buters and those trading up is described as a wealth increase.
Finally, let’s look at household wealth. As with employment, the headline gains here have been impressive,
with aggregate net wealth increasing by almost £3 trillion since 2009. Chart 9 breaks down these wealth
gains by asset type – pensions, property, financial, physical. This suggests these gains have come
principally from rises in property and pension wealth. In other words, the gains have been skewed towards
those in society who own their own home or who have sizable pension pots.
That theme has continued with the plan to gerrymander the Retail Prices Index by excluding from 2030 its use of house prices and mortgage interest-rates and replacing them with fantasy rents. They assume if you own your own home you pay rent to yourself and this adds to the issue of the fact they have struggled to measure rents which are paid accurately.
So far they have kept this house of cards going but there are hints of trouble and they come from something I noted at the end of last month. This is that mortgage rates have begun to rise. Not by much if you have a large deposit but if you have a small one you have seen quite a change. If we look at the 2-year fixed-rate data from the Bank of England this morning we see that a 5% deposit will get you a mortgage rate of 4.1% rather than the 3% of a year ago. So for all the hype about lower interest-rates we see yet another example of a higher one.