ALEX BRUMMER: The housing market is on the mend

The housing narrative in the UK has been negative since the mini budget in September 2022.

A sudden increase in the cost of fixed-rate mortgages to more than 6 percent reversed a trend towards ever-rising home prices.

Economists, polled by Reuters, uphold their reputation as keepers of the gloomy science, predicting a 5 percent drop in house prices by 2023.

Analysts at Nomura went further, predicting a 15 percent decline by mid-2024.

Homebuilders added to the gloom with Persimmon and Barratt warning of a notable slowdown in the fourth quarter as consumers struggled with higher mortgage payments.

All this led to lower sales rates, increased cancellations and a sharp drop in the number of forward orders.

It is difficult to keep the UK housing market low. A chronic lack of supply, bottlenecks, especially in the high end, and the belief that bricks and mortar are a more reliable asset class than other choices like stocks, shares and crypto mean that a positive attitude towards a homeownership democracy is difficult hose down.

The gloomy housing outlook was reinforced by the Bank of England’s forecast of a two-year recession and pressure on real incomes.

The surprise surge in production in November, along with a healthy holiday season for retailers, bolstered by Marks & Spencer’s nearly £500m retail investment plans, has lifted some economic clouds.

The most recent Halifax home price index is worth a second look. It shows that annual price growth is slowing to 2 percent, the lowest since the summer of 2021. The 1.5 percent drop in house prices in December was sharp.

Yet prices rose year on year despite all the negativity. The EY Item Club of economists finds that a relatively modest increase in employment should prevent a ‘significant decline’. More worryingly, the average price could fall by 10 percent over the next 18 months.

Nationwide notes that market interest rates have fallen since the mini budget, although mortgage rates are taking longer to stabilize.

Nevertheless, fixed interest rates have fallen below 6% from month to month and those borrowers who have avoided hasty refinancing and reverted to standard variable interest rates should eventually be rewarded for their patience.

Indeed, after the temporary shock from Trussonomics, agents Rightmove report an increase in asking prices in the period from December 4 to January 7.

It seems that not only shoppers are regaining their confidence. Reports of an impending decline in housing values ​​may well be exaggerated.

If the government really wants to revive the dream of a property rights democracy, it should pay attention to Paul Johnson, the head of the Institute for Fiscal Studies in The Times.

He argues that the way to improve access to the housing market is to abolish the distortive effects of stamp duty on housing and encourage more transactions.

There is something for Chancellor Jeremy Hunt to think about as he prepares for his March budget.

Normal people

Hunt will no doubt still be wary of negative reactions from financial markets before easing fiscal constraints.

The latest intervention from Bank of England Governor Andrew Bailey should be reassuring.

He told the Commons Treasury committee that the “risk premium” – otherwise known as the “idiot risk premium” – caused by the mini-budget has disappeared.

He reiterated that it may take time to convince everyone, but the UK’s international partners seem to understand that things have normalised.

There’s perhaps no better sign of this than the bank’s ability to sell £19bn of the gilts it bought as part of its contingency program in the wake of Liz Truss’ unchecked growth budget.

In fact, Bailey says the UK ended 2022 – generally seen as disastrous – with its best market conditions in several years. Finally a slice of light from Threadneedle Street.

imperial building

Billionaire taxpayer Jim Ratcliffe’s faith in manufacturing knows no bounds.

His latest bid is on Swiss group Sika’s global concrete ingredients facilities for £615 million after they were evicted in a UK competition investigation.

More impressively, the Ineos tycoon came out on top in an auction favoring private equity.

At a time when so many British boards can’t cope with the ambition for overseas takeovers, Ratcliffe is a rare example of a Briton creating an industrial behemoth. We need more of that.