Property Investment Blog by Stuart Law

House Prices Now Growing Again

6 June 2009

That is right - the Assetz House Price Watch (HPW) analysis of all the major house price indices now shows a 10% annualised positive growth in May !

We are still awaiting the FT HPI data in a few days but in the HPW, May data is assumed to be the same as the previous month until data is released so the May FT HPI monthly data is assumed at a 1.1% fall and will be updated in due course. As we predicted earlier in the week in this blog, the Halifax House Price index came out with a big jump in prices - fully expected as it was lagging the rest of the indices and historically has been very close to Nationwide data.

The following chart is the average of all the indices monthly data, shown as an annualised figure (Halifax, CLG, FT, Nationwide, Rightmove). Growth is shown at 10% pa based on May data, up from a peak fall rate of around -22% late last year. What a turnaround !



This is the annual data chart, below, slower to react as it is the change from 12 months prior.



Distressed property prices stopped falling some months ago but now estate agent window/mortgage approval prices have also stopped falling. The chart below shows an indicative chart of how distressed prices act relative to the main house price indices and was used in a previous blog back at the beginning of the year. Note it shows the expected line of pricing which has to date been upheld.



I'm sorry everybody, my forecast of 5% falls for this year, whilst the highest of all forecasts, is I am afraid far too pessimistic and we are looking increasingly likely to have positive growth for 2009. If you've been sitting on your hands thinking you had longer before the bottom of the market, you haven't. This wasn't a house price crash, just a mild correction in the face of huge demand and according to Nationwide house price index analysis, house prices are now back to long-term average.



If you intend to buy at the bottom of the market then act now - more and more headlines and news stories over the next 30 days will wake up sellers to the strength of the market.

You heard it here first.

General Property Investment News ·UK Buy to Let and Commercial Property ·

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Time For a Big Halifax House Price Jump

3 June 2009

Halifax house price index is lagging the rest of the indices and I would expect a big monthly gain to be announced at the next monthly update, possibly tomorrow, Thursday.

This is just another pice of the jigsaw that is becoming a clear picture of the housing market beginning to return to health and growth once more.

General Property Investment News ·UK Buy to Let and Commercial Property ·

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Base Rates To Be Held At 0.5%

3 June 2009

I expect interest rates to continue to be held at their current low level for the next few months at least, and this would be the right decision. However, we must remember the recent comments from the Bank that it is likely interest rates will be raised before quantitative easing is reversed, once the economy is seen to be warming up again.

The likelihood is that the economy will move back to positive GDP growth in Q4 09 or Q1 10 and this certainly therefore brings a risk of rises around the end of this year. This is regardless of the Bank having just used assumptions of base rates staying at 0.5% for two further years in its latest inflation report.

Nonetheless interest rates are expected to remain relatively low for a long time, certainly longer than the housing market needs them to be, in order to support the economy as a whole into a recovery. The dilemma will be what the bank must do when housing is growing again in 2010 but the economy is still fragile ? Who will win when voting to raise rates to hold back housing versus keeping rates low to support the economy ?

It is interesting to note that sustained low rates would help stoke inflation, house prices included, but would in turn help to erode the real value of the national debt we have now taken on and therefore improve the situation for the country in the medium term. On balance we continue to believe rates will be held relatively low for around the next two years.

General Property Investment News ·UK Buy to Let and Commercial Property ·

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Yet More Evidence House Prices Are Turning

29 May 2009

This morning we see the Nationwide announcing 1.2% house price rises in April. Unlike most commentators, we don't take individual pieces of data as evidence the world has changed but this is just yet another of a long stream of pieces of evidence that, when pieced together, give a near certainty that the market has turned and that house prices are just months away at the most from growing again. Interestingly, the annual data for Nationwide shows house price falls now at 11% over the last 12 months whereas in March it was 15% over the prior 12 months.

Even more interesting than that is their data for their last three months which smooths out the monthly imperfections which are the inconsistencies resulting from using small sample sizes.

House prices were only down 0.5% in the last quarter on the Nationwide mortgage approvals data. Annualised, that is a mere 2.01% fall. If you haven't understood our analysis previously, now can you see why around September is our projection of when house prices cease falling on a monthly basis across all of the indices?
General Property Investment News ·UK Buy to Let and Commercial Property ·

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First-Time Buyers Can Afford to Buy-Affordability Is in No Way Stretched

29 May 2009

Some of the property doom mongers are beginning to sound like a broken record. So house prices are well above long-term averages and unaffordable to first-time buyers are they?

The simple analysis that most commentators quote is long-term house price to income ratios but, even before the historically low interest rates we have seen in the last year, we have been running through a decade of relatively low interest rates and, apart from the possibility of a period of higher rates at some point over the next five years to control inflation, we expect this to continue for the next decade and certainly for the next year or two.

True ratio monitored should be mortgage outgoings versus income, not house prices versus income ratios. These ratios are very much long-term average at present - no stretched resources are there then.

The other quotes often trotted out are to do with average UK earnings around £25,000 versus average house prices of £150,000 which some commentators refer to as a 6 to 1 ratio of affordability. The true test is the mortgage level versus income and, as the well researched David Smith of The Times pointed out a while ago, the average income of first-time buyers is much higher at around £35,000. In addition, first-time buyers don't buy average houses - they buy entry-level houses at around £120,000. If we take one of the eight 90% mortgages available in the market this morning, then the mortgage is £108,000 which is barely over three times earnings.

Now that investors have put a floor under the market it will be first-time buyers and home buyers who drive the market forwards. First-time buyers are needed to act as the foundation of property purchase chains and, as you can see above, affordability really isn't the issue and greater and greater mortgage availability is going to put a fire under the market.

Our forecast of 5% property falls this year on the main house price indices through the Assetz House Price Watch still stands from December and I suspect we will be one of the very few who do not change their forecasts in line with actual events - there is no need as it looks to be quite possible that this will be the outcome at the moment. We haven't announced forecasts for 2010 yet officially but, the more I look at it, the more I suspect it's going to be reasonably positive - dare I say 10% growth next year? Before everybody laughs, we haven't made a formal announcement yet as we do not have the data to make a well-analysed prediction but if I had to take a view, and a number of journalists have asked me to so far, that would be my best guess at present. The only bad news is interest rates will rise a few percentage points if that happens, which is inevitable we expect anyway during 2010.
General Property Investment News ·UK Buy to Let and Commercial Property ·

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Currency View

29 May 2009

The euro rate is turning with the pound strengthening strongly recently and likely to continue into the summer, and we are then very likely to see the €1.35 to the pound rate that we are targeting.

Meanwhile, the United States continues to suffer very badly and overall opinion is that the States is not out of the worst of it yet whereas the UK probably is. I have reversed my view of the dollar strength continuing and we have now reverted to dollar weakness in the short term as well as the medium to long-term.
UK Buy to Let and Commercial Property ·

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New Housing Starts Are Diabolically Low

22 May 2009

It's just been announced that the housing starts in England for the first quarter of 2009 are just 18,340. Annualised, that is a mere 73,000 houses or so. Whilst this is marginally up on the previous quarter (13%), it is very clear that the supply demand imbalance in the UK will remain for the foreseeable future, and I mean years at the very least, not months. My blog has regular comments on the implosion of housing development rate since before the summer in 2007 and figures are now so bad they are even a bit lower than our original worst-case forecasts.

These figures are exclusive of properties demolished, so the true net new properties delivered for the year will be lower as usual. The government target for new-build is 240,000 new properties a year and, at the current rate, we are running at less than one third of that. There is no chance at all, under current policies and with the state of the financial markets, that the government is going to get anywhere near its target. The UK has effectively run out of homes.

Of course there are some properties vacant - some people keep properties vacant on purpose and run the risk of the new local authority powers to commandeer them for rental purposes. There are also perhaps 15,000 units left built and unsold in the UK but this is disappearing fast as investors and an increasing number of first-time buyers take up this remaining stock. Meanwhile the housing shortage means more and more people are living at home still, sharing or living in HMOs. All of which helps build up the demand pressure on top of the limited supply which is exactly what drives house prices and indeed rents. PropertyFinder.com reckons that there will be 39,000 more households in the UK by the end of this year than there are properties.

Housing completions lag behind housing starts and these are still falling but not quite as fast as housing starts are falling as developers try to get sites finished that they have started. This is necessary as most buyers in the market at present are only purchasing finished properties, not off-plan or part complete. That pipeline is going to run out sharply I suspect in the near future.

It is with great certainty that I can state that when UK house prices start growing again around September this year it will mark the beginning of another significant long-term house price boom caused by a tremendous squeeze in supply of housing versus insatiable demand. There will have to be some pretty cataclysmic changes in this country that go way beyond the sharp changes brought about by the credit crunch in order to rebalance housebuilding rate with household creation rate. There is no political will to bring about the level of housebuilding increase required and there seems little chance of the household creation rate collapsing either.

Very good news for medium to long-term property investors.

General Property Investment News ·UK Buy to Let and Commercial Property ·

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UK Inflation Falls Hard

19 May 2009

UK Inflation figures have come in sharply lower - as expected in the short term. Retail Prices have fallen 1.2% year on year, last month was down 0.4% year on year and this is the biggest fall ever on record.

CPI figures are also sharply down to 2.3% inflation from 2.9% year on year reported last month.

news.bbc.co.uk/1/hi/business/8057032.stm

This doesnt change our view that in the short term inflationary pressures are downwards overall, regardless of exchange rate inflationary effects to the upside. Long term however, inflationary pressures are mostly up, and strongly so... this will deflate the value of mortgages and inflate rents and property / house prices, but not just yet.

General Property Investment News ·UK Buy to Let and Commercial Property ·

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The Beginning of the End of UK Property Bargains

19 May 2009

I know I've been saying this for a month or two but we really have seen the end of the best prices in the UK property market.

UK property sellers are getting bullish; Rightmove reported a 2.3% jump in asking prices in May, the biggest jump since 2003. The buyers' market is certainly over in several ways.

Not only are house prices likely to start rising again in estate agent windows in around September (see our house price watch chart in a previous blog) but distressed prices have already been rising for several months at auction and from developers. Worse, compounded by new HIPS regulations, the availability of stock coming onto the market for sale is falling, and falling rapidly, as reported by the RICS and others. There were only 61,000 new sales instructions this month compared to 135,000 this month last year.

As we've said for a long time ( investors.assetz.co.uk/blog/?postid=113 ), when the recovery comes, given the market conditions that we find ourselves in and the specific circumstances around the supply demand imbalance here in the UK and the ability or lack of it of developers to build again in volume, we expect to see a rather sudden and shocking recovery in UK house prices.


General Property Investment News ·UK Buy to Let and Commercial Property ·

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Are Property Lettings As Weak As Reported?

19 May 2009

Yes and no.

Knight Frank issued a report today talking about the sales market in London having improved but the lettings market having taken a bit of a dive due to oversupply from people renting out their last property rather than selling it. A luxury available primarily just to the more well off London market I feel. This report is just about the London market - info.knightfrank.com/ve/ZZZ8079d81IB868131R68

Meanwhile, the RICS is due to update its residential lettings report shortly. The last report they issued ( www.rics.org/Practiceareas/Property/Residential/Market/res_lettings_survey_jan09_f_190309.htm ) showed gross yields rising slightly even though rents were falling slightly. This was due to the fact that house prices are falling faster than rents at the time. Established landlords were, on the whole, seeing slightly lower rents but in a world of much reduced mortgage costs. Now that house prices are stabilising and sales beginning to increase, we expect to see a reversal in the increase in letting stock over the coming year or two and, given the lack of new supply, we expect to see a squeeze upwards in both house prices and rents in due course.

From our own clients' point of view, and my own portfolio, we are seeing broadly stable rents across the rest of the country. With the huge drop in mortgage costs for most people, the flexibility in rents in the short term is there, without prejudicing profitability, compared to a year ago. Most people seem to be resisting the opportunity to drop rents just because they can afford to do so however, mindful of the potential for interest rates to rise again and the difficulty in raising rents once they've dropped them.


General Property Investment News ·UK Buy to Let and Commercial Property ·

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