Chart of the Day: Construction Sector Confidence
Last week we had lots of coverage and comment on the retreat from mortgage lending by many of the UK’s biggest home finance providers. The essence of the problem is that the lenders are just not as willing to offer loans to people as they were. Profit margins have been squeezed as the wholesale cost of money has risen, and some mortgage providers have effectively left the market for the time being. This is making life very difficult for people needing to get a first-time loan or looking to renew their mortgage deals when fixed rate agreements reach an end.
The result is a sharp fall in the number of property transactions that are falling through because of problems in finding the required level of funding.
read more...»Exiting Mortgages - Subnormal Profits
What is happening in the UK mortgage market? Rarely a day goes by without news of another mortgage lender reassessing the risk of their housing loans and deciding to pull the plug on some of their mortgage products. Following on from the Northern Rock which has virtually stopped lending at all and wants to shift a sizeable portion of its mortgage book onto others. The Co-operative Bank, Lehman Brothers and First Direct have all announced that they are withdrawing two-year fixed rate mortgage products for the time being ans there are rumours that Halifax Bank of Scotland, the UK’s biggest mortgage lender is poised to do likewise.
All of this is one of the direct results of the credit crunch. The lenders are spinning this as a way of providing better service-levels to their existing customers but the reality is that the supply of finance in the wholesale money markets has been badly squeezed and this is now feeding through to the retail market for housing loans. It is costing the mortgage lenders more to borrow funds and their profit margins have been squeezed to a level where sub-normal profits are being made. Little wonder that some of the major players are effectively exiting the market by withdrawing some mortgage products from sale.
read more...»Buy to let - the party is over
Is the end game in sight for the buy-to-let boom - a period which has spawned a new generation of private landlords? Fuelled by cheap mortgages, rising demand for rented properties from people priced out of the owner-occupied sector and expectations of large real capital gains from soaring house prices, the number of buy to let mortgages has grown year on year to reach over 1 million by the end of 2007. But the landscape the new rentier class is darkening by the week.
read more...»Getting real…?
Despite continuing problems in the financial sector, UK consumers are defying the odds and doing what they know best - shopping.
read more...»UK Housing Market Update (March 2008)
Data for March 2008 shows a further deceleration in the pace of house price inflation and a sharp drop in the volume of completed property transactions. There are signs of a tightening of mortgage lending with some smaller building societies restricting the number of mortgages they are prepared to lend out. The value of new home loans is certainly falling and the share of fixed rate mortgages in the property market is sliding. I have attached a six chart summary of developments in the housing market used in discussion with my AS Economics students.
Stormy Weather
The UK has been battered by uncomfortable and volatile conditions and fears over damage to property this week - and the weather has been awful as well.
When it rains, it pours, and this is as true for the macroeconomy as anything else.
read more...»“10 Grand” Design
If, like me, you dream of living in a modern home of the like seen in Grand Designs, this link from the BBC gives you hope - and perhaps offers a solution to the UK housing shortage.
read more...»Housing Bubbles and Irrationality
Robert Schiller, the economist who has penned two books on the existence “irrational exuberance” writes about the US housing bubble and bust in today’s New York Times. In doing so he introduces us to another aspect of behavioural economics - the impact of information cascades which shape the decision making of people who are seeking to act entirely rationally when making a call about the investment value of putting money into property. The cascade effect kicks in when people have incomplete information and tend to rely on the experiences and judgements of others.
Schiller writes that
“The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks…... The efficient-markets view holds that the market is wiser than any individual: in aggregate, the market will come to the correct decision. But the theory is flawed because it does not recognize that people must rely on the judgments of others.”
‘How a Bubble Stayed Under the Radar’ can be read here (free registration and login to the NYT site is required)
Signals in the housing market
In a story in the Guardian today, it emerges that mortgage lenders are making borrowing less attractive in a reverse of the ‘easy, cheap’ credit terms offered in recent years.
In the height of the credit boom, I must have received something like 5 or 6 letters per week asking me to take out another personal loan or credit card. My postman seems happier now because there has been a steady drying up of these letters over the last year or so. My shredder has also seen less action in recent months!
read more...»UK Housing Market in Charts - February 2008
The latest presentation ‘The UK Housing Market in Charts’ is available to view as a streamed presentation from this link and you can also download it as a powerpoint presentation. In January 2008 we saw further evidence of a weakening in the property market. Data from the Halifax indicate that house prices in London have fallen by 7 per cent since their July 2007 peak. Sentiment in the market is becoming much more bearish and the small cuts in interest rates announced by the Bank of England will do little to reverse this in the near term.
Is the ghost of negative equity returning?
Dropping the phrase ‘negative equity’ into conversation at a dinner party is likely to lead to immediate social pariah status. Our memories are dulled by time, but less than fifteen years ago, over a million and a half households in the UK felt the chill wind of a housing recession which left them with properties worth less than their unpaid mortgage debt. Whisper it quietly but the ghost of negative equity is making a comeback.
read more...»Housing Market Tea Leaves
Judging the mood of the British housing market is never easy not least because there is a torrent of information every month that tries to capture the latest moves in average prices, property transactions, asking prices and expectations and confidence among buyers and sellers.
Hometrack issued data today that said that property prices in England and Wales fell for a fourth consecutive month in January. This took the annual rate of house price inflation to its lowest in 19 months. The Head of Research attributed this to a fall-back in confidence among would-be home buyers. One indicator of the strength of activity in the market is the length of time it takes to sell a property. Hometrack estimate that this has now reached a seven year high.
read more...»Largest fall in UK house prices for 12 years
Sharp fall in house price inflation<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Day by day we see an accumulation of evidence that the British housing market is well and truly into a significant slowdown. A lead headline in the Financial Times warns that fears over a renewed credit squeeze will give another jolt to the supply of mortgage finance available for home-buyers. and the Independent carried a front page headline asking "is the roof falling in on the UK housing market?"
Many banks are struggling to find the funds needed to lend out to new mortgage-borrowers and interest rates in the crucial inter-bank market are heading higher once more. The Nationwide Building Society has revealed figures showing the steepest monthly fall in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
Similarly weak data came from the house price figures published by the Land Registry and the media focused here on signs that house prices are falling in
So price inflation remains positive for the moment, but what matters more is the direction in which the market is heading. One doesn’t have to be particularly bearish to predict that house prices could actually dip in nominal terms at some point in the next 12 months. And real house price inflation is likely to be very low in the short term. The chart I quite like to look at regularly is the house price expectations data from the Royal Institute of Chartered Surveyors. 
2007 has seen a marked downturn in sentiment – it might take more than the odd base rate cut from the MPC to turn expectations around. If the major lenders cannot find the cash (liquidity) to lend out, demand for new mortgages will simply seep away and prices will fall further than we are expecting.
Further reading
UK property market turning down (BBC)
The collapse in Paragon shares
The value of shares in Paragon Group, <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
Paragon faced the challenge of renewing its loan facilities in February of next year – but the events of recent months mean that fresh loan finance is more costly to find. The boom in the buy to let market in the
Two of the top four buy-to-let mortgage providers have effectively crashed in the last three months. There will be no government bail out for Paragon which now faces a desperate battle for survival.
Suggestions for more reading
