This morning the attention of Mark Carney and the Bank of England will have been grabbed by this from the Halifax Building Society.
On a monthly basis, prices fell by 3.1% in April, following a 1.6% rise in March, reflecting the
volatility in the short-term monthly measure.
Those who watched the ending of the Lord of the Rings on television over the bank holiday weekend may be wondering if this is like when the eye of Sauron spots that the ring of power is about to be thrown into the fires of Mount Doom? More on the Bank of England later as of course it meets today ready for its vote on monetary policy tomorrow although we do not get told until Thursday.
If we step back for some perspective we see this.
House prices in the latest quarter (February-April) were 0.1% lower than in the preceding
three months (November-January), the third consecutive decline on this measure
This means that we have fallen back since the apparent boom last October and November when the quarterly rate of growth reached 2.3%. Now we see that over the past three months it has gone -0.7%,-0.1% and now -0.1%.
Moving to annual comparisons we are told this.
Prices in the last three months to April were 2.2% higher than in the same three months a year earlier, down from the 2.7% annual growth recorded in March.
Again the message is of a lower number.
What have we learnt?
Whilst the monthly number is eye-catching this is an erratic series as going from monthly growth of 1.6% to -3.1% shows. Even the quarterly numbers saw falls last year at this time but then recovered as we mull a seasonal effect. But for all that as we look back we do see a shift from numbers of the order of 5% annual growth to numbers of the order of 2%. Of course that is the inflation target or would be if the UK establishment allowed house prices to be in the inflation index rather than keeping it out of them so it can claim any rise as wealth effects. Personally I see the decline in the rate of house price inflation as a good thing as for example the last three months has seen it much more in line with the growth in UK wages.
What does the Halifax think looking ahead?
They are not particularly optimistic.
“Housing demand has softened in the early months of 2018, with both mortgage approvals and completed home sales
edging down. Housing supply – as measured by the stock of homes for sale and new instructions – is also still very
low. However, the UK labour market is performing strongly with unemployment continuing to fall and wage growth finally picking up. These factors should help to ease pressure on household finances and as a result we expect
annual price growth will remain in our forecast range 0-3% this year.”
In terms of detail we are pointed towards this.
Home sales fell in March. UK home sales dropped by 7.2% between February and March to 92,270 –
the lowest level since May 2016.
And looking further down the chain to this.
Housing market activity softens in March. Bank of England industry-wide figures show that the
number of mortgages approved to finance house purchases – a leading indicator of completed house
sales – fell for the second consecutive month in March to 62,914 – a drop of 1.4%. Approvals in the
three months to March were 1.7% higher than in the preceding three months, further indicating a
subdued residential market.
So the fires of the system are burning gently at best.
The UK establishment responds
Of course so much of the UK economic system is built on rising house prices so we should not be surprised to see the establishment riding to the rescue. Here is the Financial Times on today’s report from the Intergenerational Commission and the emphasis is mine.
After an exhaustive, two-year examination of young Britons’ strained living standards and the elderly’s concerns about health and social care, the commission recommended a £10,000 “citizen’s inheritance” for 25-year-olds to help them buy their first home or reduce their student debt, lower stamp duty for people moving home and billions more spent on health in a report published on Tuesday.
Nobody at this august institutions seems to ever stop and ask the question as to why so much “help” is always needed? The truth is that it is required because house prices are too high. They of course turn a not very Nelsonian blind eye to that reality. Also the bit about creating the money seems rather vague.
The commission said the government could find the money needed to fund the additional public expenditure by introducing new taxes on property and wealth.
Indeed the lack of thought in this bit is frightening especially when we see the role of who said it.
Carolyn Fairbairn, CBI director-general and a member of the commission, said: “The idea that each generation should have a better life than the previous one is central to the pursuit of economic growth. The fact that it has broken down for young people should therefore concern us all.”
No challenging of all about can or should we grow if it means draining valuable resources and sadly no doubt soon we will get more global warming rhetoric from the same source. Then to correct myself on the issue of taxes we do get some detail and it is something that the establishment invariably loves.
The bulk of the additional tax measures came from a proposal for a new property tax, with annual rates of 1.7 per cent of the capital value of a home for any properties worth more than £600,000 and 0.85 per cent on values below that.
What sort of mess is that? You inflate house prices and tell people they are better off. Then you make the mess even worse by taxing many on gains they have not taken! A clear cash flow issue for many who may have a more expensive property but still live in it. This will be especially true for the retired living on a pension.
Oh and £10,000 won’t go far will it? So this is something that will plainly go from bad to worse.
Also some advice to millennials. Should you ever get this £10,000 don’t pay off your student debt as that looks to be something likely to be written off road to nowhere style in the end anyway.
If we start with millennials I do think that times are troubled but the real driving factor affecting them is this.
Those in their late 20s and early 30s were the first generation not to have higher pay on average than people of the same age 15 years earlier, according to the commission.
We are back to wages again which the establishment of course then shouts look over here and moves to house prices. But then it has a problem because its claim that there has been little or no inflation faces this inconvenient reality.
With the prospect of more time spent renting from private landlords, the average millennial spent 25 per cent of their income on housing, compared with roughly 17 per cent for baby boomers when they were younger, a figure that subsequently fell for that generation as their incomes rose sharply in the 1980s and 1990s.
So we have higher prices and payments without having much inflation! It is a scam which the establishment continue with their claim that housing inflation can be measured using imputed rents. Even worse they measure rents badly and may be underestimating the rises by around 1% per annum.
Now we can return to Mark Carney and the Bank of England who no doubt feel like they have heat stroke when they read of house price falls. This is because of the enormous effort they have put into this area of which the latest was the Term Funding Scheme which ended in February. It started in August 2016 and UK Bank Rate is the same now at the emergency rate of 0.5% but we can measure its impact on mortgage rates. You see according to the Bank the last 3 months before it saw new business at 2.39% twice and then 2.3% whereas now it has gone 1.96%,2.02% and now 2,04%. So an extra Bank Rate cut just for mortgages.
Now if we factor that into house prices would it be churlish to suggest it may have raised them by the £10,000 the Intergenerational Commission wants to gift to millennials?