tag:www.contractjournal.com,2009:/blogs/brickonomics//163 2009-11-06T12:59:55Z Figuring out trends in housing, property and construction Movable Type Enterprise 4.32-en tag:www.contractjournal.com,2009:/blogs/brickonomics//163.75180 2009-11-06T12:04:45Z 2009-11-06T12:59:55Z

The RICS construction survey for the third quarter of 2009 found confidence over increased workloads returning to the industry for the first time since 2008 Q1. This was despite an overall fall in workload across the industry as a whole...

Brian RICS construction survey for the third quarter of 2009 found confidence over increased workloads returning to the industry for the first time since 2008 Q1. This was despite an overall fall in workload across the industry as a whole and the fact that things would have been worse but for a positive showing from publicly financed construction. So are the surveyors right and we are poised to rebound from recession over the coming year? Certainly it is encouraging to see optimism alive and kicking in the construction industry. But the seeming disparity between optimism and reality does throw up some issues, which relate to this survey and others of its nature such as that from the buyers' body CIPS. It is not uncommon for questions on expectations of workload to overstate the likely future. (Although I suspect if you looked at the surveys of farmers or civil engineering contractors the reverse may be true. I recall in the 1980s the surveys of the then civils body FCEC consistently painting an over gloomy picture of the future.) But on this point, let's look at the survey data from RICS in the period up to the start of the construction recession in early 2008. The graphs below are taken from the first quarter 2008 survey. So what do they tell us?]]> Baron Sugar when asked about recession by a BBC journalist. On this point an observation made by Adam Smith in Wealth of Nations does seem to contain at least one phase for our age, certainly if we consider the behaviour of some bankers. He wrote: "The over-weening conceit which the greater part of men have in their own abilities is an antient evil remarked by philosophers and moralists of all ages. Their absurd presumptions in their own good fortune, has been less taken notice of. It is, however, if possible, still more universal. There is no man living who, when in tolerable health and spirits, has not some share of it. The chance of gain is by every man more or less over-valued, and the chance of loss is by most men under-valued, and by scarce any man, who is in tolerable health and spirits, valued more than it is worth." If this were true in the mid 1700s it appears the more so today. So it would seem that we need to be at least cautious of optimism. On this point I was rather taken with a story on the BBC website about grumpiness. (I hasten to point out that the research does not appear to suggest those that are grumpy by nature are smarter, rather it suggests we think differently when we are grumpy than we do when we are happy.) Further I recognise that this blog is regarded as unreasonably pessimistic, and it is perhaps fairly said that it could easily attract Gillette as a sponsor. However, despite the gloomy prospects for the industry's output over the next couple of years there are many other reasons to be optimistic about construction and perhaps I should find more time to plough that furrow. I have long argued that the industry should pay more attention to the quality of what it can do and the quality of its earnings rather than the volume of work it can do and the quantity of turnover. It will not be the collapse in workloads per se that causes most damage to the industry over this recession it will be the industry's response to the lack of work and its propensity to suicidal bidding. And I certainly agree that positive thinking is a must in these tricky times, on that point I am at one with Baron Sugar. But to kid yourself, or work on the premise that the worst is over with regard to the recession, will ultimately prove disappointing and for some rather crushing. I had an enlightening chat with my good friend Martin Hewes a couple of days ago. He related how he had woken from a bad dream and felt great relief that the turmoil he was dreaming was not real. "It's better than waking up from dreaming you've won the lottery to the disappointment of finding that you haven't," he said. Now that is positive thinking. ]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.75034 2009-11-05T12:44:55Z 2009-11-05T13:09:45Z

For those poring over the latest new orders figures released today to find guidance on the future of construction activity I suspect there is something for the optimists, but rather more for the pessimists. It must be said that trying...

Brian new orders figures released today to find guidance on the future of construction activity I suspect there is something for the optimists, but rather more for the pessimists. It must be said that trying to discern sensible insight from examining the orders figures month by month is probably as fruitful as peering and prodding hourly at the scab on a grazed knee to see how it's healing. You more or less know how long it will take to heal - a few days - but that doesn't stop you looking. Anyway the latest fare came out from the ONS today and it shows construction orders continuing on the predictable decline downward at a pretty predictable rate. ]]> Bank of England move to extend quantitative easing, suggesting more needs to be done to repair the damaged and highly fragile UK economy. ]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.74694 2009-11-03T11:21:38Z 2009-11-03T11:33:17Z

The latest round of trade survey data points to an ugly acceleration in the rate of collapse of workloads. Persistent sightings of green shoots over the late spring and summer now look to have been little more than a mirage....

Brian The latest round of trade survey data points to an ugly acceleration in the rate of collapse of workloads. Persistent sightings of green shoots over the late spring and summer now look to have been little more than a mirage. Construction Products Association says the construction recession is deepening. Experian's latest monthly construction industry trends survey found that the rate of contraction in construction activity, having eased for much of this year, has accelerated for two months. The buyers' body CIPS construction industry survey found a similar trend, with the rate of contraction accelerating over the past two months. The specialist contractors body NSCC found that both orders and inquiries have continued to shrink. And perhaps the worst bit of news is the continued fall in tender prices recorded by the construction information service BCIS. It found tender prices fell by 4% in the second quarter of this year and were 11.7% below where they were a year ago. The one surprising optimistic signal was from the specialists. The NSCC respondents on balance expect to see more workload in the coming quarter. This however presents a conundrum as far as interpretation is concerned, because they appear to be saying with fewer orders and fewer inquiries they expect to conduct more work. One possible explanation for this apparent paradox could be a rather savage outcome of survivor bias. With so many specialist contractors falling by the wayside there is more work for the remaining firms. But whatever the reason for this hint of optimism or any other that can be found in the surveys, the overwhelming message is that either someone has taken a scythe to the green shoots or they were never really taking root. And the cruel evidence from this latest batch of surveys now points worryingly to a double dip in the rate of decline of construction, which it must be said is an order worse than a double dip recession in actual construction output. ]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.72874 2009-10-23T08:40:32Z 2009-10-23T08:45:07Z

An estimated fall of 1.1% in construction output in the third quarter of this year has helped to hold the UK economic growth in recessionary territory. Much to the surprise of many analysts the UK economy appears to have remained...

Brian GDP output falling 0.4% in the three months of July, August and September. These are however only preliminary estimates and will be revised. And in recent quarters revisions to the estimated construction output have caused sharp revisions. But these figures, which show construction 13% down on a year ago, will dampen optimism as it seems the clamp of the recession is still tight around the UK economy. ]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.71865 2009-10-19T10:11:18Z 2009-10-19T10:39:42Z

On the subject of Grant Shapps and John Healey, I attended the Housing Market Intelligence conference last week at which both spoke. I obviously recommend the conference because I have a vested interest in it and indeed the associated report,...

Brian Housing Market Intelligence conference last week at which both spoke. I obviously recommend the conference because I have a vested interest in it and indeed the associated report, which I edit. But that is not the point. While the presentation styles of the two politicans could not have been more different, there was one thread I noticed that appeared to tie the two presentations together. Given that this was pretty much a pre-election speaking opportunity both managed deftly to alienate large slices of the audience. ]]> Mr Healey showed intense sensitivity to the audience by bigging up his plans to introduce more competition to the critically sick house building market through his Public Land Initiative. The full force of this policy, he thought, had not really been appreciated. He hopes it will open the way for more contractors to jostle in the building market with house builders, adding competition and a thirst for innovation. Great, but I am not sure a room densely populated with struggling house builders was really up for listening to such an eager presentation on how more competition could be introduced to a market that is on the floor and even today is forcing firms out of business. Mr Healey's proclamations followed earlier policy suggestions from Mr Shapps - he who would be housing minister. He treated the conference - which it must be said is sensitive on planning issues - to his wide-eyed innocent version of "localism". (I'll leave aside his Linux inspired open-source planning propositions, only to say that open source programming is normally about everyone winning, whereas in planning almost inevitably someone has to take a hit and lose. Still maybe if I twittered, I'd understand where he was coming from.) Mr Shapps says he'll provide local areas (the definition of area appears yet to be fully defined) with match funding on the council tax generated from new build housing for six years. That amounts a grant of about £10,000 a home spread over 6 years. Or put another way about £2 billion a year if the industry ever gets to the levels of output large numbers of experts say are needed to meet the demand and need for homes. Will this work as a policy? Well let's take an example where you double the homes in a particular given area. That means the locals get about £5,000 each in kind for each new home, if none of the allocated funding leaks away. The other £5,000 naturally goes to the incomers. Now if those locals fear for a moment that a new development would knock £5,000 off the value of their homes, whether they are right or wrong, they will object. No, as I see it, this is not the way Mr Shapps. It will fail. But I have a variation that might just work - make it a lottery. Here's how it works. A house builder has plans for a 100-home development. So you get the local community to hold a secret ballot. All the "yes" votes are put into a special tub and one is drawn out. The lucky voter then gets 100 times £10,000 (spread over six years if you like). The "millionaire" draws (or half a million for 50 homes) could perhaps be televised to raise extra funds and to cement the merits of the policy, generate excitement and spread the word. Now my guess is that such a scheme would test the resolve of even the most ardent nimby. And you get the bonus of an extra much-needed available home, because it is a reasonable to assume that the winner would move after the ballot was drawn. If you don't think it would work, I suspect there are some hard-nosed game theorists who might argue differently. tag:www.contractjournal.com,2009:/blogs/brickonomics//163.71842 2009-10-19T09:49:59Z 2009-10-19T09:58:06Z

The Building and Social Housing Foundation has emailed its latest report "The Future of Housing", which has just been published. It would be rather tricky to summarise the document other than to say it provides a critical look at the...

Brian The Future of Housing", which has just been published. It would be rather tricky to summarise the document other than to say it provides a critical look at the state of the post-credit-crunch housing market. The report is a synthesis of a meeting instigated by BSHF bringing together three dozen or so practitioners and academics from different housing-related disciplines, some with overseas experience, for three days of discussion and debate at St George's House in Windsor Castle in the summer. Many of the points raised are familiar, but the report does pose plenty of questions worthy of consideration. Certainly I would put it on the reading lists of Grant Shapps and John Healey, if they haven't already read it. ]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.71588 2009-10-16T11:35:14Z 2009-10-16T11:58:58Z

For those with an optimistic nature there was some good news to be seen in the latest set of industry forecasts with both the Construction Products Association and Hewes trimming how much they feel output in the industry will fall....

Brian Construction Products Association and Hewes trimming how much they feel output in the industry will fall. Indeed the three forecasts came closer together in this round of forecasting as Experian took a marginally dimmer view of 2009. This convergence hints at there being more certainty about the near term direction of construction than there was. That said, as the graph shows, the views of the industry prospects remain some way apart, with Experian the most upbeat and Hewes shading assumptions on the downside. But all are agreed that 2009 will see the worst of the recession and the pace of decline will slow markedly after that. CLICK ON GRAPH TO ENLARGE ]]> unemployment was more positive than had been expected, although it would be foolish to suggest that a temporary slowdown in the rate of growth was evidence of a turnaround in fortunes. But there will be many who see this as evidence that the Government's stimulus has had some positive effects. There are also signs of increased confidence in the property market. IPD, which produces property indicies shows a marked turnaround in the UK property market. And a poll by Reita, the property investment information portal, found 54% of property expepts seeing a "significant improvement in investor sentiment. How sustainable this is and how long this will take to feed through into construction is uncertain, but there is some cause for a bit of relief. However, to use that much-used cliché, the elephant in the room is the question over how deep will be the cuts in public spending on construction and how much damage will that do to output overall. Will the upswing in private activity be strong enough to avoid a double-dip recession? The general view among the forecasters is that the bite into publicly-funded construction output will not be that evident in the figures until late 2011. The play at that point between a falling public sector workload and a potentially rising private sector will be what determines the strength of any recovery in construction, or indeed whether the industry plunges back into recession in the next decade. So, whatever rays of hope there are in the current forecasts and data should be viewed through the prism of uncertainty when looking to the medium term. And, certainly, of more immediate concern when considering the forecasters' views on output volumes should be the impact the recession is having on prices. Here the picture still looks bleak with the latest tender price forecast from the cost information service BCIS suggests that tender prices could fall peak-to-trough by 15% if there are deep cuts in public spending or if the uplift in work from private sector clients is sluggish. ]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.70278 2009-10-08T08:11:31Z 2009-10-08T08:26:45Z

The futures market is now pricing in strong growth in the housing market, with the Halifax index priced to rise by 6% over the coming 12 months and by 12% over 5 years. This is a marked rise in the...

Brian Tradition Future HPI - a derivatives-based measure of future house prices - in September priced the Halifax non-seasonally adjusted average house at £174,745 in a year's time. This compares with the one-year-out price of £163,549 posted in August. And the 5-year future price is put at £184,636, which represents solid growth, but still leaves average prices almost 9% down on the peak reached in 2007. ]]> It must be said that, while the futures market can be a good gauge of the direction of prices may go, the it is used as a means of hedging and so is prone to exaggerating the likely degree of change. Also the degree of month-to-month change in forward prices seen in recent months suggests uncertainty and so the rapdily improving futures market should by no means be seen as proof of an equivalent improvement in the housing market. Expert comments from within the futures market seem to chime with the cautious views of housing experts generally. Peter Sceats, who heads the real estate division of Tradition, sees reason to expect suppressed growth on the basis of the ratio of average house prices to average earnings (HPE Ratio), which he sees as a key house-price forecasting tool. "The US HPE ratio now stands about 15% below its long-run average suggesting that, by historical standards, US houses are now cheap. But the UK HPE Ratio is still around 35% above its long-run average," he says. "Given that the housing market still faces considerable challenges in the form of high unemployment, restrictive lending and an increase in all types of taxation (including stamp duty), it would be surprising to see house prices continuing to increase at their recent rate." But there is good news for house builders who may wish to hedge their risk. Over the past 18 months to two years the market was heavily weighted by those hedging against price falls, so deeply depressing forward prices. If this changes and the market starts to lean more heavily towards hedging against price rise, the derivatives market may provide an opportunity to purchase risk reduction at very comforting forward prices. tag:www.contractjournal.com,2009:/blogs/brickonomics//163.69609 2009-10-01T09:47:22Z 2009-10-01T10:03:29Z

The latest new orders figures provide a sobering injection of reality after the barrage of "it's okay the recession is over" talk that seems rife. Yes the rate of collapse has slowed. But it's the level that really matters at...

Brian new orders figures provide a sobering injection of reality after the barrage of "it's okay the recession is over" talk that seems rife. Yes the rate of collapse has slowed. But it's the level that really matters at the moment. Forgetting seasonal adjusted constant price measures, if we compare the amount of work contractors have bagged over the preceding 12 months in cash terms we see the amount still dwindling. New work won in cash terms over the 12 months to August was down 33% from peak at the end of 2007. This is despite strong rises in public sector and infrastructure orders. And we have to throw in the effects of the restocking process that has started to take place in the housing market, which in recent months have given the new orders figures a bit of a boost. Now the link between orders and output may be far from linear, and you can contemplate as many green shoots as you like, but the reality is that the construction industry has to work through a period when there is a serious shortage of work to be done. And, more worryingly, when there is even less money being paid for it.]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.69384 2009-09-29T13:56:16Z 2009-09-29T14:27:28Z

During a conversation with a colleague on the recent spate of cash calls by house builders I was quizzed on how much damage the recession had done to their balance sheets. I made a stab (a lucky guess as it...

Brian During a conversation with a colleague on the recent spate of cash calls by house builders I was quizzed on how much damage the recession had done to their balance sheets. I made a stab (a lucky guess as it turned out), but I should have had a number at my figure tips. I waffled while I grabbed a calculator and tapped in some very rough and ready numbers. Well have a guess how much that bit of number crunching came up with? Here's what the numbers suggest:

Plot costs down from about £44,000 at peak to £31,000.

Say four years land banks at 200,000 units a year at peak

That makes the value of land banks at peak, say, £35 billion. That same land would be worth now about £25 billion. So a rough drop of about £10 billion on land alone.

Add in the restructuring costs and finance costs and we have a fair slab more.

So chances are, to answer his question, we are probably somewhere in the £10 billion to £15 billion range. A quick reality check, looking through the accounts of the six big traditional stock-market-quoted house builders, finds they produced about a third of the homes in 2007, had just shy of 300,000 plots and between have recorded exceptional costs of around £4 billion as a result of the recession, much of which was write downs on land. Times that £4 billion or so by three and we are in the same ball park. Some will argue that land has fallen further. It may have, but not all land on the books of house builders would have been priced at peak prices. So theoretically the pain may have been greater in terms of the potential asset value at peak. It's silly to read too much into this sort of calculation, but it is instructive and provides a notion of the scale of the financial pain in house building. That of course is just one way of looking at the damage of the recession. Meanwhile, what caught my eye on the subject of scale, was how the balance sheet losses suffered by residential developers and house builders seems to be rather in the same league as the money £13 billion the Homes and Communities Agency has for the next two years. ]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.69350 2009-09-29T09:51:47Z 2009-09-29T10:01:51Z

The fall in GDP wasn't as big as we thought thanks to stronger than estimated construction activity. That is the assessment of the statisticians who put together the national accounts. But is this good news or bad news for construction?...

Brian national accounts. But is this good news or bad news for construction? ]]> GDP figures were released in late August. This less pessimistic assessment of the construction sector helped lead the statistician to trim their calculation in the latest quarterly national accounts and put the fall in GDP at 0.6% instead of 0.7%. The revision was not totally unexpected, as the official construction output data for Great Britain, which varies a bit from the data plugged into the UK GDP calculation, showed a fall of just 0.5% for the second quarter. This suggested a fairly hefty revision once this survey-based data was used to replace the model-based forecast used in earlier takes on the construction contribution to GDP. Now the temptation for those less familiar with construction would be to read this and put a positive spin on it saying construction was doing far better than we thought. Well in one sense that may be true. But, and here is where it all gets a bit weird, it could be that the upward revision is not a reflection of good news, but of bad news for those in construction. And here's why. The revision upward could be down to any number of factors in the model. But it may be that the statisticians put in a reasonable estimate for the amount of work done in cash terms, but underplayed the fall in prices in their model. This would naturally lead to an upward reassessment of the amount of actual work done, as you would get more work for your money. But it would mean that construction firms were cutting their costs even deeper than the statisticians originally estimated. That from a construction point of view is not good news. Confused? Well don't worry. The numbers don't alter the reality. But it may be worth being a bit wary of people suggesting the upward revision in GDP is yet another green shoot. It may just be a reflection of construction firms being screwed down harder on price than was previously thought, which frankly is a rather more like having a pernicious weed in the industry's garden. ]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.68486 2009-09-18T14:33:24Z 2009-09-22T11:35:57Z

Feel that fantasy football is a bit old hat? Think you have outgrown FIFA Manager 09 and are itching to run something bigger than a football club? Well why not try playing Fantasy Chancellor and conduct your very own Spending...

Brian Institute of Fiscal Studies have just the spreadsheet for you. And the simple download comes complete with some top-notch "cheats" to give you that extra edge.

• Read the full Observation
• Download the DIY Spending Review

And it's free. So pit your wits against Alistair Darling and see if you can steer the UK economy away from impending doom. Ok so I have rather hyped it. But I am sure when those smart cookies at IFS have fine tuned the xbox version it will have all the extra features like power cuts, strikes, collapsing infrastructure, extended NHS waiting lists, civil unrest... along obviously with total global economic domination ]]> tag:www.contractjournal.com,2009:/blogs/brickonomics//163.68241 2009-09-16T09:07:50Z 2009-09-16T09:16:38Z

The latest employment figures make grim reading for the construction industry with the number of workforce jobs plunging by 61,000 in the second quarter of this year. This means that 111,000 jobs have been lost to the industry since they...

Brian employment figures make grim reading for the construction industry with the number of workforce jobs plunging by 61,000 in the second quarter of this year. This means that 111,000 jobs have been lost to the industry since they peaked in the autumn last year. In fairness the drop in workforce jobs has been coming for some while and it has been a mystery as to why the numbers had held up so well for so long given the severe downturn in construction output and the surging numbers being made redundant. The latest data do in fact show that earlier figures for workforce jobs in construction have been revised down, with 5,000 jobs shaved off the 2008 third quarter peak figure and with the figure for the first quarter of this year showing 15,000 fewer jobs than were estimated three months ago.]]> Employment is seen as a lag indicator, so with the falls in the level of workload still running we should expect this fall in employment to be a marker for more substantial falls in the coming quarters. Given the level of uncertainty over the economy generally and the prospects for public investment attempting to make accurate estimates of job losses is near futile. But with what we know now it is not unreasonable to assume that somewhere between a quarter and a third of construction jobs are at risk. So we could be looking at between 500,000 and 700,000 job losses in construction. But however expected these figures are they represent a severe concern for the industry, which has been plagued by the effects of erratic levels of employment that have stymied attempts to improve the level of skills. If the past provides any clues to the future, the industry is currently set to see a rapid loss of jobs followed by a very sluggish pick up in employment when growth returns. This will then be followed by skills shortages. With vacancies at near starvation levels there is little for the job hunting construction worker to feed on, so they will migrate to other industries and be lost to construction. From an industry policy perspective the emphasis appears currently to be heavily based on pressing the Government to fund new construction projects. This I believe is a mistake. If jobs are the issue this perhaps should be rethought. The view widely shared among those who I suspect better understand the figures is that more emphasis should be put on repair and maintenance work, which tends to far more labour intensive for the level of spend and far better at creating "local" jobs. What is more, repair and maintenance also plays much more effectively to the green agenda, so would provide the industry with a far more persuasive argument. tag:www.contractjournal.com,2009:/blogs/brickonomics//163.68176 2009-09-15T10:44:17Z 2009-09-15T10:55:35Z

I am not sure about you, but I sometimes have to go to the back numbers to make sense of the statistics that get thrown at me. I have been for some months a bit curious as to why the...

Brian Consumer Price Index to fall to 1.4% in August, according to the regular consensus poll of economists undertaken by Reuters. The actual figure recorded by the Office of National statistics was 1.6%. This underestimation of inflations now seems to be a regular event each month. This suggests that the economists polled are on average of the view that the economy is under greater deflationary pressure than is actually the case. So I looked at the back data and the components that make up the CPI and was a bit baffled as to why this view should be so deeply ingrained. Here's a graph of CPI showing the year to year comparison that we get headlines written about and the actual month-by-month trend in the index. I have also plotted CPIY, the index with the effects of indirect taxes removed. And you can see the point of departure when VAT was reduced.]]> What is clear is that in the wake of Lehman Brothers collapse there was a deflationary period, which saw the price index fall for the four months October 2008 to January 2009. We all remember the pre-Christmas sales. But since January prices have risen according to the index by about 2.5%. Hardly deflation. Since January the only month that has seen prices fall was July, and a fall in prices in July is not unusual. So we are seeing prices rise far sharper than the inflation rate suggests, with the recent monthly inflation rate far higher than the headline annual change figure suggests. And as the reference point for the headline rate moves into the deflationary period of October 2008 to January 2009, we should expect to see a sharp rise in CPI, unless that is we are heading for a corresponding period of deflation. Just to speculate wildly and play with the numbers, even if prices stood still from now to next January the inflation rate would rise to 2.5%. And, if they rise in the remainder of the year as fast as in the year to date, by December Mervyn King might be close to putting pen to paper. And no doubt those who see inflation as a threat will point to the recent rise in RPIY, which is the retail prices index mix of goods and services with the mortgage payments and indirect tax volatility taken out. Having reached a low of 1.9% in June this index has risen to 2.1% in July and 2.3% in August. So perhaps we should be getting a wee bit more concerned about inflation than we have been. Well maybe, but clearly when you are developing policy to address any risk you look at both the chances of an event happening and also the scale of the consequences if that event should happen. Deflation presents rather nastier problems for the economy than a slight excess over inflation. So you give it a much wider berth on the grounds that if you overdo the remedy you can sort out the mess of too much inflation more easily. There is of course a long way to go before we have a clear picture of whether the beast of deflation has been defeated, there are a huge number of variables and time lags that influence the one number - 1.6% - that we are presented with when inflation is described. But there are two things to bear in mind in my view. Firstly, what happened last year is not always the best reference point, particularly if it was a freak period. Secondly, the consequence of winning the battle over deflation might be a rather sharper rise in inflation than the Bank of England would like. So we should at least prepare ourselves for rather higher interest rates than we as borrowers might like. tag:www.contractjournal.com,2009:/blogs/brickonomics//163.68144 2009-09-14T22:54:09Z 2009-09-14T23:11:26Z

The big news is that for the first time in two years more surveyors in Britain said prices rose than said they fell, according to the latest RICS housing market survey. The big question is whether this is the start...

Brian RICS housing market survey. The big question is whether this is the start of a continuous and sustained recovery in the housing market or just, as the ITEM Club suggested yesterday, a false dawn. The big problem is that while the survey points to a general rise in prices, it also highlights that there are deep fault lines running through the current housing market. And these are creating considerable uncertainty over what meaning to put to the recent rally. One thing that seems pretty likely is that many of the pet theories put forward by various experts on why house prices are rising despite a still fragile economy and growing unemployment will be put to the test. Firstly what does the survey say? ]]> It shows for August a positive balance of 10.7% (seasonally adjusted) between those surveyors seeing falling prices and those that have seen prices rising. This is set against - 5 7% in July and the trough of -94.7% when the market was in meltdown in April 2008. The survey also shows that sales are increasing and stocks are increasing, although not as fast as sales. So the sales to stock ratio (a pretty good basic indicator of future prices) also rose. Unsurprisingly on the back of this surveyors are increasingly confident of price rises, a confidence that will be bolstered by the increase in new inquiries in August, although the pace of increase was checked on July's high. And interestingly for the first time since December 2007 there was an increase in people trying to sell their homes. So taken at a national level what might all this mean? That very much depends on what you think is driving the market. So let's take the generally accepted view that the rise in prices is in large part down to a shortage of supply, which is helping to prop prices. The theory is that vendors are under less pressure to sell than might have been expected if interest rates were not at historically low levels. So we have created with this recession the phenomenon of the "reluctant landlord", who is holding onto a property until the market bounces back. And the facts do seem to fit with the argument. There is limited stock and a rising number of buyers, interest albeit from a very low base. It seems reasonable to assume that these people are gradually bidding up prices. The unsettling question is what happens when potential vendors mutate into real vendors. Will we see a shift in the demand-supply balance and see a fall in prices. What is bothering many experts, and certainly the ITEM Club economists, is that the pool of potential buyers is limited, particularly the cash-rich element that has accounted for a far greater proportion of the action recently than they would have in a more normal market. Will the current price rises and strong sales figures tempt reluctant landlords and a bunch of other want-to sellers to put their properties up for sale? And how much would this boost supply? The RICS certainly sees signs that more positive "news flows" are encouraging more vendors back into the market. This leaves the big unknown: can the increase in number of buyers keep up with the increase in the number of properties coming onto the market and if not will prices fall? But, in truth, the market is a bit more complicated than considering averages on a national basis. There are big regional and local differences and within each regional or local area there are various layers of buyers and sellers. What is very clear from the RICS figures is the pattern of recovery, if that is what it is, is very patchy regionally. The positive numbers are by and large being generated on the back of a much strengthened London market with strong upward movement in the rest of the south of England and in Scotland. There is a band across the middle and parts of the north of England that spreads into Wales where house prices are still on average falling, according to the RICS survey. What the survey does not show is who is buying and who is selling. Are we seeing a return to a fully functioning housing market or are we seeing a return of activity only in a layer of the market where reside the relatively equity rich? Hopefully the next few months will provide us with more data that may start to answer more of these questions.