Enness" s Market View - October 8th
House Prices
With Nationwide reporting a house price increase this month it was inevitable that the Halifax would come out with a negative movement but the scale of the reduction is surprising. Talking about the statistics, Martin Ellis, their housing economist, said: "Looking at quarterly figures - a better measure of the underlying trend, house prices in the third quarter of 2010 were 0.9% lower than in the second quarter of 2010. This rate of decline is significantly slower than the quarterly changes of between -5% and -6% that were seen in the second half of 2008. It is therefore far too early to conclude that September's monthly 3.6% fall is the beginning of a sustained period of declining house prices.
A shortage of properties for sale contributed to an imbalance between supply and demand was a key factor driving up house prices last year. An increase in the number of properties available for sale in recent months has reduced the imbalance. At the same time, renewed uncertainty about the economy and jobs has caused consumer confidence to falter recently, dampening the demand for home purchase. Together, these factors have been exerting some downward pressure on prices in recent months. In addition, volatility of the month on month measure has increased due to the low transaction levels across the market; this underlines the difficulty of getting a clear reading on the current state of the housing market.
The Base Rate
When the Bank of England's rate-setting committee sat on Thursday, it shaped up for its first three-way vote in more than two years, amid a growing debate about the trade-offs between apparent signs of inflation and indications the economy is sinking into stagnation. Andrew Sentance, an external member of the monetary policy committee, had been calling for a quarter point rise in interest rates for several months because inflation is running persistently above the Bank's two per cent target. Arguing against those on the MPC who favour the status quo, Mr Sentance consistently points to a stronger recovery than expected, an improving labour market and a stubbornly high consumer price index. Despite this call, the Bank of England kept the base rate of interest 0.5% for at least another month marking the longest period the measure has stayed at the same level since the Second World War. The Bank's programme of quantitative easing (QE) has remained at 200 billion. David Kern, chief economist at the British Chambers of Commerce (BCC), said there was an argument for an expansion in QE given the rise in VAT and the implementation of the fiscal austerity programme.
Fixed Mortgages
Fixed mortgage rates fell to a record low last month as more deals became available to first-time buyers. The typical cost of a two-year fixed rate deal fell by 0.08 per cent to 4.4 per cent last month, the lowest level since records began in 1988. A similar drop was seen in rates on three-year and five-year fixed rate deals, according to financial information group Moneyfacts.co.uk. These fell to 5.04 and 5.36 per cent respectively, both also the lowest ever recorded. But buyers better hurry to make the most of the deals.
Banks and building societies are preparing to tighten their lending criteria again during the coming three months, according to the recent Bank of England Credit Conditions Survey. The Council for Mortgage Lenders also highlighted the worry expressed by many about the new responsible lending proposals. Their study suggests that about half of the eight million mortgages approved in the past five years would have been banned under the tougher affordability rules proposed by the Financial Services Authority (FSA). The Council of Mortgage Lenders also say that 3.8 million of those loans have "performed" throughout the financial crisis and recession, with just 200,000 having defaulted.
With Nationwide reporting a house price increase this month it was inevitable that the Halifax would come out with a negative movement but the scale of the reduction is surprising. Talking about the statistics, Martin Ellis, their housing economist, said: "Looking at quarterly figures - a better measure of the underlying trend, house prices in the third quarter of 2010 were 0.9% lower than in the second quarter of 2010. This rate of decline is significantly slower than the quarterly changes of between -5% and -6% that were seen in the second half of 2008. It is therefore far too early to conclude that September's monthly 3.6% fall is the beginning of a sustained period of declining house prices.
A shortage of properties for sale contributed to an imbalance between supply and demand was a key factor driving up house prices last year. An increase in the number of properties available for sale in recent months has reduced the imbalance. At the same time, renewed uncertainty about the economy and jobs has caused consumer confidence to falter recently, dampening the demand for home purchase. Together, these factors have been exerting some downward pressure on prices in recent months. In addition, volatility of the month on month measure has increased due to the low transaction levels across the market; this underlines the difficulty of getting a clear reading on the current state of the housing market.
The Base Rate
When the Bank of England's rate-setting committee sat on Thursday, it shaped up for its first three-way vote in more than two years, amid a growing debate about the trade-offs between apparent signs of inflation and indications the economy is sinking into stagnation. Andrew Sentance, an external member of the monetary policy committee, had been calling for a quarter point rise in interest rates for several months because inflation is running persistently above the Bank's two per cent target. Arguing against those on the MPC who favour the status quo, Mr Sentance consistently points to a stronger recovery than expected, an improving labour market and a stubbornly high consumer price index. Despite this call, the Bank of England kept the base rate of interest 0.5% for at least another month marking the longest period the measure has stayed at the same level since the Second World War. The Bank's programme of quantitative easing (QE) has remained at 200 billion. David Kern, chief economist at the British Chambers of Commerce (BCC), said there was an argument for an expansion in QE given the rise in VAT and the implementation of the fiscal austerity programme.
Fixed Mortgages
Fixed mortgage rates fell to a record low last month as more deals became available to first-time buyers. The typical cost of a two-year fixed rate deal fell by 0.08 per cent to 4.4 per cent last month, the lowest level since records began in 1988. A similar drop was seen in rates on three-year and five-year fixed rate deals, according to financial information group Moneyfacts.co.uk. These fell to 5.04 and 5.36 per cent respectively, both also the lowest ever recorded. But buyers better hurry to make the most of the deals.
Banks and building societies are preparing to tighten their lending criteria again during the coming three months, according to the recent Bank of England Credit Conditions Survey. The Council for Mortgage Lenders also highlighted the worry expressed by many about the new responsible lending proposals. Their study suggests that about half of the eight million mortgages approved in the past five years would have been banned under the tougher affordability rules proposed by the Financial Services Authority (FSA). The Council of Mortgage Lenders also say that 3.8 million of those loans have "performed" throughout the financial crisis and recession, with just 200,000 having defaulted.
Source...