Brickonomicstag:www.contractjournal.com,2009:/blogs/brickonomics//1632009-11-19T10:30:16ZFiguring out trends in housing, property and constructionMovable Type Enterprise 4.32-enHouse building looks set for growth in 2010tag:www.contractjournal.com,2009:/blogs/brickonomics//163.781762009-11-19T10:22:31Z2009-11-19T10:30:16ZThe latest Government house building numbers strongly suggest that a shade more than 100,000 homes will be built in England in 2009. This would represent a 40% drop on the peak year of 2007 and make 2009 a record peacetime...Brian
house building numbers strongly suggest that a shade more than 100,000 homes will be built in England in 2009.
This would represent a 40% drop on the peak year of 2007 and make 2009 a record peacetime low.
There are hints of hope in the figures with the starts figures rising. But if we look at the 12-monthly number we see that the accumulated starts over the past year are low, which does not bode well for an upturn in completions. Still, it is a start in the right direction.
]]>
cock-up in the figures last time around has rather damaged the credibility of the numbers, but the current pattern when looked at on a 12-monthly basis does seem to match the noise coming up from the ground.
All in all, from such a low base, house building does look like a growth prospect for suppliers. Not that the market prospects are without risk and uncertainty.
]]>
Are expectations of inflation too low?tag:www.contractjournal.com,2009:/blogs/brickonomics//163.777892009-11-18T08:59:38Z2009-11-18T09:48:55ZInflation is now on the way up. That was to be expected. As Mervyn King, Governor of the Bank of England, keeps reminding us, we should expect inflation to be very volatile for some while. But, is it me or...Brian
Inflation is now on the way up. That was to be expected. As Mervyn King, Governor of the Bank of England, keeps reminding us, we should expect inflation to be very volatile for some while.
But, is it me or do the forecasts for inflation reaching a mini-peak at about 3% in the early part of next year seem to be a little timid?
The reason I am a bit unsettled is that if expectations for inflation prove to be significantly on the lower side, this may lead to an upward pressure on mortgage rates and lending rates in general.
]]>
Inflation Report). And there is a mood among economists that the rate may just top the 3%, which would force a letter from Mr King to the Chancellor.
Should the letter be written, the Governor of the Bank of England will tell Alastair Darling not to worry because inflation is a bit volatile at the moment and should receded in the coming months. And almost certainly he will be right about inflation receding.
My unease, however, is with the level the next peak will reach. I can't help but think that there is more than an outside chance that inflation will top the upper expectations of the Bank's forecast fan chart.
For those with an interest in these things the fan charts the Bank uses cover outcomes likely 90 out of 100 times. So the Bank thinks that there is less than a 1 in 10 chance (given that there is a chance of undershoot and overshoot) that the inflation will actually rise above the level depicted in the fan chart.
The reason I feel uneasy is that I am not fully convinced by the assumptions being made about the effect of the reintroduction of the 17.5% rate of VAT.
Comparing the level of consumer price inflation excluding indirect taxes with the standard CPI index it seems plain that we should expect the planned rise in VAT in the New Year to create fairly sharp upward pressure on an inflation rate that is already on the rise.
If we look at the graph (sourced from ONS data) we see the reduction in the VAT rate had quite a reasonable impact on inflation. The gap between the two indexes increased by about 1.3%, suggesting a drop in price of about that proportion was a result of tax changes.
Now this does not mean that a reversal of the rate will mean an increase of this magnitude. As the Bank wisely suggests some retailers may be pricing in the reintroduction ahead of time as they manage the ticketed price points of their goods. This will act to mute the effect.
But these two indexes will have to come into closer alignment, unless there is further significant tinkering with the indirect taxes. Part of this will most likely be the created by downward pressure on the CPI (ex indirect tax) measure, but a large part of the adjustment will result from a rise in the headline CPI measure. The question is: how much?
It does seem reasonable to assume (that is code for I haven't checked) that the levels of inventories retailers will carry this year heading into Christmas will be weighted on the light side, which should reduce the need for savage discounts in the January sales. If this is the case the seasonal fall in prices at the start of the year may well be much less it was last year, thereby creating further upward pressure on the headline inflation rate.
Producer prices too offer more scope for concern, as inflation here is on the rise.
Now I fully accept that there are huge numbers of variables here and a high level of uncertainty.
But if we look at projecting the CPI measure of inflation forward to hit 3% in January (see the green line), we see that the increase in prices from where they stand today is very limited if the Banks' expectations are to be met. This probably means that prices will need to fall if the effects of VAT are to be accommodated.
Now I accept the good people at the Bank possess exceptional brainpower and can put some pretty fancy modelling into action and they will have taken into account far more than I have sought to here. So it would be folly for me to suggest that they are badly mistaken.
But I can't help but sense that the inflationary pressures may be a little stronger than the consensus among experts would have us believe. And in this regard I can only point to the assessment of future inflation in the August Inflation report, which suggested a mini-peak early next year of less than 2.5%.
I hope my worries prove unfounded.
]]>
New Year stamp duty switchback will have little impact, says RICStag:www.contractjournal.com,2009:/blogs/brickonomics//163.769362009-11-16T11:34:11Z2009-11-17T20:29:38ZFor those interested in what will happen when the stamp duty holiday comes to an end on December 31, the surveyors' body RICS has done a little bit of research among its members. Basically, the results seem to suggest that...Brian
RICS has done a little bit of research among its members.
Basically, the results seem to suggest that by and large the effect on property transactions will be muted and will not cause a swell in the number of people looking to buy or sell their homes in the run up to 2010.
And when the tax threshold rises in the New Year estate agents in most regions don't think there will be a fall in transactions.
There is however quite a bit of regional variation in the views, which is not surprising given the spread in house prices regionally. London and the South East, for instance, unsurprisingly expect the least effect.
]]>
Christmas sales come to the housing markettag:www.contractjournal.com,2009:/blogs/brickonomics//163.768662009-11-16T07:56:03Z2009-11-16T08:13:24ZIt's the run up to Christmas and we're in a recession - well if not technically, we're definitely suffering from the recession - so don't be surprised to see redundancies on the rise and asking prices for homes on the...Brian
Rightmove and FindaProperty. Both show the recent rally in asking prices reversing this month.
No doubt there will be many reading this as a sign of the start of the double dip in house prices. Well a double dip in the housing market is highly likely, but whether the drop in these indexes represents the crack from the starting gun or not is debateable.
]]>
For my money it is hard to unpick the seasonal effect from any underlying shift in the market. The picture is clearly confused still further with the promised rise in the stamp duty threshold.
Still it will be interesting to watch over the next three to four months the movements in these indexes along with the plethora of other measures of house prices activity.
It may just be that the decline in asking prices for homes measured in November continues and gathers a bit of pace through the winter.
That will certainly present an interesting conundrum for the housing market analysts as spring approaches as they seek to understand what will be the effect of a looming General Election.
The likelihood is a negative effect in terms of transactions.
But more specifically, will there be fewer homes put on the market, reducing supply, or fewer buyers in the market, reducing demand? Or both?
There is of course always the Armageddon option (looked at from the sellers' perspective) of a fall in prices in the lead up to an election spooking homeowners such as reluctant landlords into selling up.
My suspicion is that we will see little of what might be regarded as a resolution to the market and its current state of unstable equilibrium until after the General Election.
I fear we will continue to bumble along from many months yet with a housing market that is basically dysfunctional and confusing to read.
Construction continues to shed workers at an alarming pacetag:www.contractjournal.com,2009:/blogs/brickonomics//163.758502009-11-11T09:59:24Z2009-11-11T10:13:18ZA further 38,000 construction workers were made redundant in the three months to September according to the latest Government labour market figures. This raises the total of employees shed over the previous 12 months to 177,000. Meanwhile the figures also...Brian
labour market figures.
This raises the total of employees shed over the previous 12 months to 177,000.
Meanwhile the figures also show that the chances of those being made redundant finding a new job within construction have dropped even further. Recorded vacancies fell to an average of just 8,000 over the three months to October.
Also the redundancy figures apply to just a section of those who earn a living from construction, as large numbers are self-employed in what is a highly-casualised industry. This can cloud the true extent of the damage being done to the construction workforce.
But the graphs clearly illustrate the plight of those employed in construction. And next month the statisticians will make their latest estimate of how many jobs there are within the industry.
]]>
To date the official figures suggest a loss of 111,000 jobs within constrution. The figures put the peak of workforce jobs at 2,281,000 in September last year and the number of jobs in June this year at 2,170,000.
Many find these figures rather hard to square with the reality on the ground. But getting accurate construction employment figures is tricky, particularly over recent years when they have been confused further as a result of a large contingent of migrant workers who tend to be harder to track within the employment surveys.
However, the latest release of employment data will provide some relief for house builders, as there appears to be a suggestion that the rate of unemployment is slowing. House builders are highly sensitive to the fear that rising unemployment might drive the housing market into a further sharp decline.
But the figures show that just 30,000 were added to the jobless figure in the third quarter, while the number claiming unemployment benefit rose by 12,900.
This is a sharp decline in the rate of unemployment, which had been rising at about 200,000 a quarter over the previous 12 months.
The stagnant housing market: More a problem of first-time movers than first-time buyerstag:www.contractjournal.com,2009:/blogs/brickonomics//163.757732009-11-10T20:41:12Z2009-11-10T21:08:50ZFirst-time buyers are increasingly becoming trapped in their first-time homes and unable to move on to homes that better suit their needs. That at least is the implication of some figures that caught my eye recently when I was looking...Brian
Council of Mortgage Lenders.
Consider this: the median income of a household taking out a mortgage to move is £47,328, or it was in August this year. In 2000 that figure would have been £29,000. This represents a 60% increase in the median earnings of home movers against a 33% increase in median earnings across the UK as a whole.
Graph 1 shows the rise in the median household income of first-time buyers taking out mortgages and of house movers along with the median and mean incomes across the UK as a whole.
Graph 2 shows the ratio of the median household income of both first-time buyers and house movers to the UK median income.
It would seem that the threshold of earnings to be able to move is rising. This in turn strongly suggests that the proportion of first-time buyers able to trade up is diminishing - and probably diminishing fast.
And these figures do not take account of the fact that cash buyers have become an increasingly large part of the home-mover market.
If the figures mean what I strongly suspect they do then current policy appears to be giving large numbers of desperate first-time homebuyers a leg up into a housing trap.
What is more, as the graphs suggest, this is a problem that seems to predate the credit crunch, so is not simply about access to finance.
]]>
Housing Market Intelligence caught my attention (see Graph 3).
At current rates of property transactions households are moving once every 25 years. What is more as Graph 4 (also from Donnell's Housing Market Intelligence presentation) shows the effects of the credit crunch have meant that, even more than before the financial crisis, acquiring a mortgage to move home is increasingly a preserve of the better off.
I don't present this as a definitive thesis on the subject, more as thoughts and concerns. And having spoken to various industry experts, there does seem to be a broadening view that there are structural problems in the marketplace created by "trapped" homeowners.
But certainly if the real problem lies more with first-time movers rather than the first-time buyers then there is a need for a radical rethink of housing policy.
Unfortunately the solutions, whatever they might be, are likely to be extremely complex at best and/or probably unpalatable, socially and politically, at worst.
]]>
Has the housing mini-boom run out of puff?tag:www.contractjournal.com,2009:/blogs/brickonomics//163.755902009-11-10T12:34:42Z2009-11-10T14:59:28ZAll the gauges appear to be reading "set fair" in the housing market, so why the long faces among those in the know? The latest RICS housing market survey on the face of it provides every reason to suspect that...Brian
RICS housing market survey on the face of it provides every reason to suspect that better times lie ahead. This follows a raft of housing indexes showing house prices rising steadily for several months.
The RICS survey has for three months now seen more surveyors reporting rising prices than reporting prices falling and the majority has grown.
The survey shows that as well as rising prices there are increasing numbers of new instructions, sales are increasing, new buyer inquiries are rising and surveyors are increasingly confident of that prices will continue to increase.
But why, with everything appearing so rosy, is there so much concern among the experts that I talk to about the fragility of the market?
]]>
Hometrack survey.
He noted: "What is becoming increasingly clear from recent Hometrack surveys is a marked slowdown in the rate of growth in the volume of new buyers registering with agents. This suggests that the pent up demand that has boosted the market in recent months is starting to fade in the face of firmer pricing and fewer clear bargains."
And he added: "Prices over October may have risen, but these rises were registered across just 16% of the market. Across the remaining 84% of the country, prices remained static."
Also with more stock appearing on the market we are seeing the RICS sales-to-stock ratio - regarded as a fairly good indicator of a shift in market sentiment and a herald of price changes in about six months time - appearing to be stalling.
So, despite the prima facie evidence pointing to an improving market, there are some warning signs of a possible relapse.
The next few months are likely to be among the more fascinating as we wait to see if the market does double dip.
And as far as I can see, the smart money seems to suggest it will.
]]>
Optimism alive and kicking in constructiontag:www.contractjournal.com,2009:/blogs/brickonomics//163.751802009-11-06T12:04:45Z2009-11-06T12:59:55ZThe 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.
]]>
Orders figures continue to point to a rougher road aheadtag:www.contractjournal.com,2009:/blogs/brickonomics//163.750342009-11-05T12:44:55Z2009-11-05T13:09:45ZFor 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.
]]>
Growing evidence of double dip collapse for constructiontag:www.contractjournal.com,2009:/blogs/brickonomics//163.746942009-11-03T11:21:38Z2009-11-03T11:33:17ZThe 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.
]]>
Falling construction helps hold UK in recessiontag:www.contractjournal.com,2009:/blogs/brickonomics//163.728742009-10-23T08:40:32Z2009-10-23T08:45:07ZAn 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.
]]>
Why let planning just look like a lottery? Make it onetag:www.contractjournal.com,2009:/blogs/brickonomics//163.718652009-10-19T10:11:18Z2009-10-19T10:39:42ZOn 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.
Food for thought for would-be housing ministertag:www.contractjournal.com,2009:/blogs/brickonomics//163.718422009-10-19T09:49:59Z2009-10-19T09:58:06ZThe 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.
]]>
Forecasts suggest some rays of hope, but huge uncertainty remainstag:www.contractjournal.com,2009:/blogs/brickonomics//163.715882009-10-16T11:35:14Z2009-10-16T11:58:58ZFor 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.
]]>
Future traders think the tide has turned for house pricestag:www.contractjournal.com,2009:/blogs/brickonomics//163.702782009-10-08T08:11:31Z2009-10-08T08:26:45ZThe 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.
]]>
cock-up in the figures last time around has rather damaged the credibility of the numbers, but the current pattern when looked at on a 12-monthly basis does seem to match the noise coming up from the ground.
All in all, from such a low base, house building does look like a growth prospect for suppliers. Not that the market prospects are without risk and uncertainty.
]]>
]]>
Inflation Report). And there is a mood among economists that the rate may just top the 3%, which would force a letter from Mr King to the Chancellor.
Should the letter be written, the Governor of the Bank of England will tell Alastair Darling not to worry because inflation is a bit volatile at the moment and should receded in the coming months. And almost certainly he will be right about inflation receding.
My unease, however, is with the level the next peak will reach. I can't help but think that there is more than an outside chance that inflation will top the upper expectations of the Bank's forecast fan chart.
For those with an interest in these things the fan charts the Bank uses cover outcomes likely 90 out of 100 times. So the Bank thinks that there is less than a 1 in 10 chance (given that there is a chance of undershoot and overshoot) that the inflation will actually rise above the level depicted in the fan chart.
The reason I feel uneasy is that I am not fully convinced by the assumptions being made about the effect of the reintroduction of the 17.5% rate of VAT.
Comparing the level of consumer price inflation excluding indirect taxes with the standard CPI index it seems plain that we should expect the planned rise in VAT in the New Year to create fairly sharp upward pressure on an inflation rate that is already on the rise.
If we look at the graph (sourced from ONS data) we see the reduction in the VAT rate had quite a reasonable impact on inflation. The gap between the two indexes increased by about 1.3%, suggesting a drop in price of about that proportion was a result of tax changes.
Now this does not mean that a reversal of the rate will mean an increase of this magnitude. As the Bank wisely suggests some retailers may be pricing in the reintroduction ahead of time as they manage the ticketed price points of their goods. This will act to mute the effect.
But these two indexes will have to come into closer alignment, unless there is further significant tinkering with the indirect taxes. Part of this will most likely be the created by downward pressure on the CPI (ex indirect tax) measure, but a large part of the adjustment will result from a rise in the headline CPI measure. The question is: how much?
It does seem reasonable to assume (that is code for I haven't checked) that the levels of inventories retailers will carry this year heading into Christmas will be weighted on the light side, which should reduce the need for savage discounts in the January sales. If this is the case the seasonal fall in prices at the start of the year may well be much less it was last year, thereby creating further upward pressure on the headline inflation rate.
Producer prices too offer more scope for concern, as inflation here is on the rise.
Now I fully accept that there are huge numbers of variables here and a high level of uncertainty.
But if we look at projecting the CPI measure of inflation forward to hit 3% in January (see the green line), we see that the increase in prices from where they stand today is very limited if the Banks' expectations are to be met. This probably means that prices will need to fall if the effects of VAT are to be accommodated.
Now I accept the good people at the Bank possess exceptional brainpower and can put some pretty fancy modelling into action and they will have taken into account far more than I have sought to here. So it would be folly for me to suggest that they are badly mistaken.
But I can't help but sense that the inflationary pressures may be a little stronger than the consensus among experts would have us believe. And in this regard I can only point to the assessment of future inflation in the August Inflation report, which suggested a mini-peak early next year of less than 2.5%.
I hope my worries prove unfounded.
]]>
]]>
To date the official figures suggest a loss of 111,000 jobs within constrution. The figures put the peak of workforce jobs at 2,281,000 in September last year and the number of jobs in June this year at 2,170,000.
Many find these figures rather hard to square with the reality on the ground. But getting accurate construction employment figures is tricky, particularly over recent years when they have been confused further as a result of a large contingent of migrant workers who tend to be harder to track within the employment surveys.
However, the latest release of employment data will provide some relief for house builders, as there appears to be a suggestion that the rate of unemployment is slowing. House builders are highly sensitive to the fear that rising unemployment might drive the housing market into a further sharp decline.
But the figures show that just 30,000 were added to the jobless figure in the third quarter, while the number claiming unemployment benefit rose by 12,900.
This is a sharp decline in the rate of unemployment, which had been rising at about 200,000 a quarter over the previous 12 months.
Graph 1 shows the rise in the median household income of first-time buyers taking out mortgages and of house movers along with the median and mean incomes across the UK as a whole.
Graph 2 shows the ratio of the median household income of both first-time buyers and house movers to the UK median income.
It would seem that the threshold of earnings to be able to move is rising. This in turn strongly suggests that the proportion of first-time buyers able to trade up is diminishing - and probably diminishing fast.
And these figures do not take account of the fact that cash buyers have become an increasingly large part of the home-mover market.
If the figures mean what I strongly suspect they do then current policy appears to be giving large numbers of desperate first-time homebuyers a leg up into a housing trap.
What is more, as the graphs suggest, this is a problem that seems to predate the credit crunch, so is not simply about access to finance.
]]>
Housing Market Intelligence caught my attention (see Graph 3).
At current rates of property transactions households are moving once every 25 years. What is more as Graph 4 (also from Donnell's Housing Market Intelligence presentation) shows the effects of the credit crunch have meant that, even more than before the financial crisis, acquiring a mortgage to move home is increasingly a preserve of the better off.
I don't present this as a definitive thesis on the subject, more as thoughts and concerns. And having spoken to various industry experts, there does seem to be a broadening view that there are structural problems in the marketplace created by "trapped" homeowners.
But certainly if the real problem lies more with first-time movers rather than the first-time buyers then there is a need for a radical rethink of housing policy.
Unfortunately the solutions, whatever they might be, are likely to be extremely complex at best and/or probably unpalatable, socially and politically, at worst.
]]>
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.
]]>
]]>
Bank of England move to extend quantitative easing, suggesting more needs to be done to repair the damaged and highly fragile UK economy.
]]>
]]>
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.
]]>