A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
Economic News
IMF praises UK’s macroeconomic stability
The International Monetary Fund (IMF) has given glowing praise to the UK economy’s strength and stability over the last decade. The IMF expect economic growth to pick up in 2006 and 2007, to a very similar rate to that forecast by the Bank of England, at 2.25% next year and 2.75% the following year.
While noting some concern over house price levels, the IMF commented: “House prices are still richly-valued by some metrics, though a year of steady prices gives some comfort that risks of an abrupt adjustment have lessened.”
(www.imf.org)
Likelihood of a rate cut increases
Following on from weaker average earnings figures than expected and a surprise fall in inflation, the minutes from the Monetary Policy Committee Meeting on 7/8 December gave further signs that the next move in interest rates could be downwards. One of the nine MPC members, Stephen Nickell, voted for a 25 basis point reduction in the repo rate (the other eight voted for no change) and the minutes noted that: “Some members remained of the view that the risks to the central projection for GDP were weighted somewhat to the downside in the second half of the forecast period, reflecting doubts about the profiles for investment and net trade.”
(www.bankofengland.co.uk)
High street spending picks up
There were signs of an improvement in high street spending in the first two weeks in December, according to the Confederation of British Industry’s (CBI) Distributive Trades Survey (DTS). The balance of retailers surveyed described their volume of sales as at the same level as a year ago. This was the first time since February that sales volumes have not been reported as lower than a year ago, and is considerably better than expectations for the period.
The CBI noted “strong anecdotal evidence to suggest retailers resorted to aggressive price discounting and bulk-buy offers to attract customers”. Ian McCafferty, CBI Chief Economic Advisor, said: "Christmas, in retailing terms, is coming later and later each year as consumers play chicken with the high street and delay their spending in the expectation of late price cuts as the big day draws nearer.”
(www.cbi.org.uk)
Company News
McCarthy and Stone expect lower sales volumes
The country’s largest retirement home builder, McCarthy and Stone, warned that sales volumes are expected to be lower this financial year. Speaking at the AGM, Chairman Keith Lovelock re-iterated his comments in a trading update on 3 November: “We believe, therefore, that it is likely that volumes in the first half will be lower than in the comparable period but we are looking to maximise the benefit from our new sales releases in the second half and would hope to improve on the second half volumes compared to last year. Overall, we would not, at this stage, expect full year volumes to exceed last year's. Actual volumes will clearly depend upon how market conditions unfold.”
Mr Lovelock then added: “The Group's trading experience since the 3 November announcement is not dissimilar to that of September and October. Buyer interest is clearly evident and we have continued to record reasonable visitor levels but an apparent reluctance to commit in the current market has resulted in lower sale rates per site. However, overall, our reservation performance since 3 November is slightly better than the comparable period which, for us, recorded the onset of more difficult trading conditions.”
(www.hemscott.com)
Housing Market
RICS report first rise in prices for 16 months, with buyer interest continuing to pick up
The Royal Institution of Chartered Surveyors (RICS) November housing market survey saw a balance of surveyors reporting rising house prices over the last three months for the first time since July 2004. A balance of +4% of those surveyed said prices rose over the three months to November, an improvement from a balance of –8% reporting a fall in October’s survey.
Buyer interest continued to rise, with a balance of +15% of agents surveyed reporting an increase in new buyer enquiries in November, the sixth successive rise and the longest spell of increases since 2001. The number of new instructions from vendors to sell their properties fell marginally, with a balance of –2% of surveyors reporting fewer new instructions to sell than in October. The new instructions balance has been broadly flat for four months after rising during the first half of 2005.
(www.rics.org.uk)
HBOS forecast prices to rise 3% next year
The country’s largest mortgage provider, HBOS, forecast that house prices will rise by 3% in 2006. Within this forecast, the annual rate of house price inflation is expected to peak at 7-8% around mid-year, due to comparison with slight falls in prices in the early part of 2005, before falling back to a more modest 3% by the end of the year. Property transactions in England and Wales are projected to increase from an estimated 1.5 million in 2005 to 1.6m in 2006, while earnings growth, at 4.5%, is expected to outstrip house price growth and “make it slightly easier for first-time buyers to get onto the housing ladder”.
Chief Economist Martin Ellis commented: “Continuing economic growth, the high level of employment, robust earnings increases and the prospect of further interest rate cuts will support housing demand during the coming year."
(www.hbosplc.com/)
Another lender tightens buy-to-let criteria
Following a decision by Portman, the third largest buy-to-let (BTL) lender, to halt any BTL lending on new build apartments two weeks ago, the tenth largest lender, Capital Home Loans, has tightened its lending criteria on new flats. Capital Home Loans has raised its minimum required deposit from 15 to 25% and is limiting exposure to any single development to less than 25% of the block. Senior manager of marketing, Trevor Child, commented: “With other lenders tightening criteria, it is very sensible to pull back yourself or you become over-exposed. Everyone is looking at their lending criteria now.” (Financial Times 22 December)
Capital Economics backtracks on house price crash forecast
The most prominent proponents of an imminent house price crash, Capital Economics, have abandoned their forecast of sharp price falls and adopted a much more benign view. Capital had forecast that prices would drop by 20% over a three year period, but they are now expecting a decline of “5% or so over the next two years” and a stagnant market going forward.
Capital commented: “As things stand, there would appear to be a growing chance that the adjustment to lower valuations will come about largely via a period of broad nominal price stagnation, allowing both real house prices and the HPE (House Price to Earnings Ratio) to decline gradually over a prolonged period.” (Capital Economics)
Other News
Councils will miss affordable homes target, says report
Councils do not think they will be able to meet the demand for affordable homes in their areas over the next three years. A study by the Audit Commission and National Audit Office found that only 2% of local authorities questioned thought they would be able to meet the need for rented social housing under the government’s current spending round, and just 4% thought they would meet the need for key worker housing. This is despite the government’s investment of £3.3 billion in social housing. The study said that targets set over the next few years would not be met unless planning applications are dealt with quickly. It also called for public sector bodies that have large land holdings to dispose of the land for affordable housing, rather than selling to the highest bidder.
(www.nao.org.uk)
Public to have more say on planning
New planning guidance designed to help local people “frame their comments” have been launched by the Planning Inspectorate. The guides provide best practice for local authorities, planning agents, developers and local residents and will assist local people if they want to make a comment.
ODPM Minister Baroness Andrews said: “The material in this guide will help everyone to understand what the key tests will be when development plan documents and statements of community involvement are examined by an inspector from the Planning Inspectorate. The guides will also help any individual or group frame their comments on the plan or statement and it explains how those comments will be considered by an impartial inspector.”
(www.odpm.gov.uk)
Government spends on infrastructure
The government has allocated £34 million to three railway stations in a bid to reassure developers that it is willing to invest in the infrastructure needed to support an increase in housebuilding rates. The money will come from the Community Infrastructure Fund (CIF), which has a total of £200 million to support housebuilding in designated growth areas over the period 2006/7 and 2007/8. Milton Keynes Central and Wolverton railway stations will receive £24 million for improvements and £10 million will go to improvements at Dalston Junction station.
Baroness Andrews, ODPM Minister, said: “For the sake of the next generation we must act now. But providing more homes at more affordable prices must mean building to high design and environmental standards, and crucially, supported by the right infrastructure - transport, hospitals, schools, parks and leisure facilities. We are in the business of creating sustainable communities - not just bricks and mortar.”
(www.odpm.gov.uk)
Paul Samter
Senior Analyst - Economic and Policy Affairs
Home Builders Federation
For daily news updates for the housebuilding industry from Housebuilder magazine go to www.house-builder.co.uk