Why the Governor of Bank of england is happy – The Property Chronicle
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Why the Governor of Bank of england is happy

The Economist

This morning there will have been scenes at the Bank of England. Indeed there will have been jostling amongst the staff as they rush to be the one who presents the morning meeting. Whoever grabbed the gig will be facing a Governor who has a wide beaming smile as his mind anticipates raiding the well-stocked wine cellar later. Perhaps the cake trolley will be filled with everyone’s favourites as well. What will cause such happiness?

Sharp increase in July pushes house prices to highest ever levels ( Halifax )

Unwitting passers-by may hear a murmur which sounds like “The Wealth Effects! The Wealth Effects!” because that is exactly what it is. This mentality has seeped its way through the UK establishment now as the Deputy National Statistician Jonathan Athow parroted such a line during a recent online conference on how he plans to neuter the Retail Price Index.

What are the numbers? The Halifax reported quite a surge last month.

Following four months of decline, average house prices in July experienced their greatest month on month increase this year, up 1.6% from June and comfortably offsetting losses in 2020. The average house price

in July is the highest it has ever been since the Halifax House Price Index began, 3.8% higher than a year ago.

If we look at levels we get a context to the house price boom the UK has seen in recent decades as we note that an index set at 100 in 1992 was at 416.6 in July. Putting that another way the average price is now £241,604. Care is needed with such averages because they vary between different organisations quite a but partly because as you can see the numbers come in for some torture.

The standardised average price is calculated using the HPI’s mix adjusted methodology………The standardised index is seasonally adjusted using the U.S. Bureau of the Census X-11 moving-average method based on a rolling 84-month series. Each month, the seasonally adjusted figure for the same month a year ago and last month’s figure are subject to revision.

84 months!

Why?

As we switch to the question posed by Carly Simon we are told this.

The latest data adds to the emerging view that the market is experiencing a surprising spike post lockdown. As pent-up demand from the period of lockdown is released into a largely open housing market, a low supply of available homes is helping to exert upwards pressure on house prices. Supported by the government’s initiative of a significant cut in stamp duty, and evidence from households and agents

suggesting that confidence is currently growing, the immediate future for the housing market looks brighter

than many might have expected three months ago.

So we see that the Stamp Duty cut is in play so once the Chancellor has completed this morning’s round of media interviews he will receive a call from Governor Andrew Bailey to say “Well played sir!”. I have to confess that this bit has me a little bemused that confidence is currently growing

That is hard to square with the wave of job and pay cuts we are seeing.

Mortgages

We looked at the approvals data last week but there is also the data from the tax register.

Monthly property transactions data shows a rise in UK home sales in June. UK seasonally adjusted residential transactions in June 2020 were 63,250 – up by 31.7% from May following the lifting of COVID-19 lockdown measures. Quarter-on-quarter transactions were approximately 47% lower than quarter one 2020. (Source: HMRC, seasonally-adjusted figures)

I find it odd that so many organisations continue with seasonal adjustment at a time when we are not acting as usual. But we have to suspect higher numbers again in July if we also note the trends below.

Results from the latest (June 2020) RICS Residential Market Survey point to a recovery emerging across the market, with indicators on buyer demand, sales and new listings rallying following the

lockdown related falls. New buyer demand has moved to a net balance of +61% (compared to -7% and -94% in April and May respectively). New instructions also rose firmly to a net balance of +42% (compared with -22% in May). Newly agreed sales net balance has moved into positive territory for the first time since February, with a net balance of +43% (from -34% in May).

Care is needed as that is a sentiment index with spin in play and maybe as much as the Pakistan cricket team which has picked two spinners.

If we switch to mortgage rates then the Bank of England tells us this.

The effective rates on new and outstanding mortgages were little changed in June. New mortgage rates were 1.77%, an increase of 3 basis points on the month, while the interest rate on the stock of mortgage loans was 2.16%, unchanged from May and 0.2 percentage points lower than in February.

As you can see the rate for new mortgages is quite a bit below that on the existing stock meaning that a combination of new draw downs and remortgaging is pulling the overall position lower.

Bringing this up to date we have a story of two halves where remortgages remain at extraordinary low levels but the first time buyer has to pay quite a bit more.






The Economist

About Shaun Richards

Shaun is an independent economist who studied at the London School of Economics. His speciality is monetary economics. Shaun worked in the City of London for several investment banks and then on his own account over a period of 15 years. After initially working in the government bond department at Phillips and Drew Ltd. he moved on into the derivatives arena with options of all types being a speciality.

Articles by Shaun Richards

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