A weekly news summary covering all aspects of the housebuilding industry from Pierre Williams, HBF's head of media, available to members only.
House Prices Rocketing Once More
The latest figures from the National Association of Estate Agents and Rightmove now seem to suggest the opposite with average prices rising by £150 a day - twice as fast as a year ago. Whilst the North still leads the way, London and the South East have bounced back according to the surveys. However, the apparent surge has prompted renewed warnings that the market will eventually have to crash rather than result in the hoped-for soft landing. The war of words between the optimists and pessimists shows no sign of abating and neither does there seem to be any clear indication as to which “side” is winning. To add to the confusion, an unexpected drop in inflation figures this week has put serious doubt on whether the near certain rise in interest rates the Bank of England was supposed to bring in next month will indeed happen. The Bank now faces the real problem of justifying a rates increase to rein in the housing market while inflation is falling. Two more pessimists added their voices to the debate this week. The IMF said: “The dramatic rise in residential property prices in recent years…has heightened concerns of an asset price bubble and thus the likelihood of a sharp price correction.” It urged the Bank of England to continue its series of quarter-point interest rates rises until the market calmed. The Rics has also added its voice to the debate saying that the market is now being driven by a speculative boom. (All media)
More Doom-mongers Emerge
Investment bank Goldman Sachs has also joined the ranks of housing market pessimists. The bank’s senior European economist, Ben Broadbent, expects prices to fall 15% as the upward trend in interest rates continues. He said: “The market is over-valued so it’s vulnerable to a fall. What is uncertain is the timing and the amount.” His comments follow hot on the heels of those made by Tony Dye of Dye Asset Management, who predicts the current boom “will all end in tears”. (FT)
But…House Price Obsession Goes Global
Rapidly house price growth has become a global phenomenon. Prices in France have increased by 50% in four years whilst New York, Tokyo, Cape Town and even Berlin - where renting has long been the norm - have all seen or are expecting to achieve double-digit price growth. (Telegraph)
FTBs Give Up…
More than one-third of would-be first time buyers have given up all hope for at least the next year, according to a survey from the Yorkshire Bank. It also found 40% were torn between saving for a deposit and watching prices rise out of reach or taking out a 100% mortgage whilst 41% were prepared to buy in an area they didn’t like in order to get a foot on the ladder. (Standard)
…And BTL Yields Increase
Returns on buy-to-let increased in March for the first time in six months according to research by Paragon Mortgages. The survey said rental yields increased to 7.22% against 7.12% in February. A Paragon spokesman said: “The fact that growing numbers of professional investors are willing to pay higher prices for properties demonstrates that the tenant demand is there and that they are confident in the future of the future of buy-to-let.” (FT)
HBF Note: What this survey also demonstrates but leaves unsaid, is that the findings also bolster evidence of overall housing market undersupply and a widening gap between the property “haves” - those getting wealthier through property accumulation - and “have nots” - aspiring first time buyers who look set to continue renting under current market conditions.
Gordon Brown’s Mortgage Dream in Tatters
The Chancellor’s hope of securing housing market stability through long-term fixed interest rates looks almost hopeless. After a difficult start and considerable lender apathy following Prof Miles report on the mortgage market, GMAC launched a 25-year fixed rate mortgage in what was hoped would set a trend for other major lenders. However, two months later GMAC has decided to abandon the scheme after just 50 mortgages were sold. A spokesman said: “It just didn’t get on people’s radars.” (Sun Telegraph)
HBF Note: With fixed rates now seemingly dead and buried, the Chancellor has only one tool left in the box for long-term housing market stability - increased supply. Or as the Guardian puts it: the government needs to use “weapons of mass construction”.
Countryside Hit On Market Fears
Countryside Properties has taken a serious knock on last week’s media speculation of a housing market crash and its admission that sales had slowed. The company’s share price fell 37.5p to 226p and brokers have cut full-year profits forecasts from £42m to £37m. Most major housebuilders (see below) also took a knock on the pessimistic forecasts, although to a lesser extent than Countryside which is particularly exposed to the not-so-buoyant South East. (Mail, Guardian, Telegraph, FT)
Investor Confidence Shaken
As a result of last week’s media pessimism, housebuilder stocks have taken a knock as some investors embark on a round of profit-taking. Barratt lost 19.5p to 612.5p; Bellway 31.5p to 794p; Berkeley Homes 52p to 970p; Bovis Homes 18.5p to 576.5p; McCarthy & Stone 20.5p to 579.5p; Westbury 12p to 480.5p; Wilson Bowden 32.5p to 1122.5p and George Wimpey 10.5p to 440.5p. However, despite the slight falls, analysts are far from gloomy, citing that the case for a housing market “correction” is far from proved and that the imbalance between supply and demand provides longer term security - a point illustrated in the following two items. (Mail)
Taylor Woodrow Buoyant
Taylor Woodrow has reported very strong trading figures for the year but, like the rest of the sector, has been bedevilled by the recent “will it or won’t it” speculation about the possibility of a market crash. Pre-tax profits for 2003 leapt 32% to £304m and the share price has made good progress. Chief Executive Iain Napier dismissed Halifax and Nationwide claims of housing market “inflation” of 15% a year saying they took no account of home improvements pushing up values. This view is backed up by the lower rate of price rises in the new build market. (FT, Independent, Express)
McCarthy & Stone Also Delivers
McCarthy & Stone has also reported good interim results for the six months to the end of February. Pre-tax profits are up 11% to £44.1m with average sales prices up 16%. Investors too, should take heart with a 23% rise in interim dividends. The future is also looking good with a 12% increase in stock levels. Chairman Keith Lovelock said: “We are encouraged by the levels of reservations on new sales releases in all regions and despite the likely upward trend in interest rates, the Board remains confident of the Group’s future performance both in the short and longer term.”