What can we expect next from UK house prices?

This morning has brought us an update on what the UK establishment treat as a not only a bell weather but also a cornerstone of economic policy which is of course house prices. The Halifax which of course represents Lloyds Banking Group which is a big player in the mortgage market so what is happening?

On a monthly basis, prices also fell by 0.6% from November following a 0.3% increase in both October and November; this is the first fall since June 2017.

So the headline catcher is that house prices fell in December however these numbers are a pretty erratic series so let us look for some perspective.

House prices in the final quarter (October-December) were 1.3% higher than in the previous quarter (July-September), down from 2.3% recorded in October and November,

So we move from a recorded fall to an apparent slowing which is backed up by a comparison of the annual data.

Prices in the last three months of 2017 were 2.7% higher than in the same three months a year earlier although the annual change in December was lower than in November (3.9%).

Another way of putting the apparent slowing is that at this time last year the annual rate of growth was 6.5% so there has been a decline which we expected. As it happens the annual decline is very similar to the 2.6% reported last week by the Nationwide Building Society so there is some confirmation there. However the pattern has been unpredictable as for example there was something of a rally in the autumn of 2017 in the Halifax data which was against the trend. For those who want to know an actual price or at least an average one here it is.

The average price of £225,021 at the end of the year is 2.4% higher than in January 2017 (£219,741).

The problem comes when we look at a comparison of such a number with what someone is likely to be earning. Such reports come with estimates themselves which in both cases ( Nationwide & Halifax)  have pretty much returned to the pre credit crunch highs or something of the order of a ratio of 5.5. However if we look at the official average weekly earnings figures and (perhaps generously) multiply by 52 we see that the answer of £26,520 requires multiplying by around 8.5 times to get the average house price.

Activity

For all the discussion of change this has been quite stable as this suggests.

Monthly UK home sales exceed 100,000 for the eleventh month in succession. Sales have remained above 100,000 in all months of 2017. In November they reached 104,200, the highest monthly level since March 2016……… For the past
twelve months mortgage approvals have been in the narrow range of 64,900 to 69,500.

The main change is that fewer seem to want to sell.

Turning to supply, new instructions to sell continued to deteriorate at the headline level and has now
fallen for 22 consecutive months – the worst sequence for close to eight years

Ominous perhaps.

What does the Halifax think about 2018?

Overall, we expect annual house price growth nationally to stay low and in the range of 0-3% by the end of 2018. The main driver of this forecast is the continuing effects of the squeeze on spending power as inflation has outstripped wage growth and the uncertainty regarding the prospects for the UK economy next year.

The first issue is that even they do not expect much if any which is revealing although their reasoning seems odd. For example unless the commodity price rises I looked at on Friday continue UK inflation seems set to fade especially if the UK Pound £ remains around US $1.35. Also whilst economists continue to write about uncertainty the main population sees an economy growing consistently if not that fast. Some of course will have fears and part of that will be Brexit related but currently economists are projecting their own “monsters of the id” on everyone else.

London Calling

This continues to provide what may turn out to be a clarion call. From The Times over the weekend.

Almost half of the homes on sale for between £1 million and £2 million in London have had their prices cut, with average reductions of £142,000, rising to nearly £900,000 in extreme cases.

Presumably not the £1 million homes seeing price cuts of nearly £900,000! It is not just a London thing as I note I may not be the only person who likes a slice or two of Christmas cake.

Across Britain one in three sellers reduced their asking price last year, the highest proportion since the double-dip recession of 2012. However, sellers with homes in the “marzipan layer” — those worth less than the super-prime stock of central London (the icing) but more than most of the rest of the country (the cake) — are making the biggest price cuts.

Some of the effect here has been the rise in Stamp Duty on higher-priced properties but I note that Henry Pryor is reporting a change in psychology.

But almost all the buyers are discretionary and feel there is no harm in waiting. With an uncertain Brexit around the corner, buyers feel they can sit tight or rent and still be no worse off because prices will be even lower next year.

A change in psychology may be enough in itself although real falls also usually have surveyors reducing valuations. Of course however there needs to be some perspective as some of the comments suggest.

Heck even my parents house is now only worth 98 times what they paid for it !

(Down from 100 times before the referendum) ( Anthony Morris)

Or.

So overpriced homes in London are now marginally less overpriced. I think we’ll survive this somehow. ( John B )

Blackfriars

For those unaware this is on the edge of what is regarded as the City of London as well as being a big train and tube station. It also had a development described in the advertising like this.

The ad portrays a rich couple embarking on helicopter rides, being serviced by an astute butler and sight-seeing the capital in a Bentley. The couple also admire a sculpture of the building they have just acquired a penthouse suite in. ( h/t @econhedge and The Drum)

How is that going? From Bloomberg.

An investor who agreed to purchase an apartment at the ritzy One Blackfriars project on the banks of the River Thames is offering the two-bedroom home on the 20th floor for 1.8 million pounds ($2.44 million), more than 22 percent less than they agreed to pay for it in 2013.

Also Bloomberg has missed the currency angle as if the investor is from Asia there is likely to be a currency related loss to add to this.

Comment

Actually the main trend in the UK housing market has been something of a realignment of house price growth with both wage growth and economic growth. That is good although things not getting worse is different from things getting better. As any sustained surge in wage growth has escaped us in the credit crunch era as we mull it rumbling on at circa 2% per annum it means that more affordable homes requires lower house prices which of course is the opposite of official policy.

As for London it is being affected by international trends where capital cities are now seeing house price falls rather than rises. There will still be overseas buyers but fewer of them and thus some air seems certain to come out of the bubble. There is still an extraordinary dislocation between current prices and the finances of the vast majority of Londoners.

Philippe Coutinho

Football fans like me were subject to another burst of transfer fever over the weekend. But there is an economic effect and if we look at the initial payment of around £106 million then there are clear effects. Firstly a boost to UK exports and thereby to economic output or GDP ( Gross Domestic Product) accompanied by a boost to the exchange rate against the Euro. Over time there will be a smaller flow in those directions as the amount heads up to a maximum £142 million. In addition to this there is presumably also a boost to GDP by the purchase of Virgil Van Dijk for around £70 million by Liverpool as they spent some of the expected proceeds.

Such numbers are always estimates in the football world  but I am intrigued how the national accounts will account ( sorry) for this, as for example do they deduct the price paid by Liverpool for Coutinho? I cannot move on without pointing out that there are clear signs of inflation here as whilst Countinho has improved as a player at Liverpool not by anything like the price change.

Also whilst I am on sporting matters congratulations to Australia on their Ashes victory.

 

 

 

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What do the UK self-employed actually earn?

One of the features of the credit crunch era in the UK has been the rise or growth if you prefer in the numbers of people who are self-employed. This has led to a debate as to whether it has been a voluntary choice or people have felt forced to do it or more likely a combination of the two. The overall effect from it has been to be one of the driving forces behind this recorded by the UK Office for National Statistics.

For September to November 2016, 74.5% of people aged from 16 to 64 were in work, the joint highest employment rate since comparable records began in 1971.

In terms of numbers the situation is as shown below.

self-employed people increased by 133,000 to 4.77 million (15.0% of all people in work)

If we start with the increase in latest figures we see that the rise in self-employment is only just shy of the rise in employees (144,000) . If we look back over the credit crunch era and start from the beginning of 2008 we see that self-employment has risen from 3.847 million to 4.775 million. Putting that another way the rise of 928,000 is some 44% of the overall rise in employment of 2,118,000. Thus the UK “jobs miracle” has seen self employment at the heart of it.

Putting it another way the numbers of self-employed look on their way to pass the numbers of people in public-sector employment.

There were 5.44 million people employed in the public sector for September 2016. This was: 12,000 more than for June 2016: 10,000 fewer than for a year earlier

So we may yet see a cross-over with the only issue being all the changes around how public-sector employment is defined and measured.

The sex issue

There is another quirk in the numbers which goes as follows. In relative terms men are more likely to be self-employed as in there are more than twice as many whereas total employment is only 13% higher. But in the credit crunch era the increase in female self-employment has been higher than the increase in male self-employment meaning that the proportionate increase is much higher. I would be interested in readers thoughts as to why there has been such a shift towards women and girls becoming self-employed?

Pay and wages

This is an issue because the official wages ( strictly average weekly earnings) data omits the self-employed entirely. Actually it also omits smaller businesses as the threshold last time I checked was 20 staff. This poses all sorts of problems especially as the number of selr-employed has been growing.

AWE is based solely on the Monthly Wages and Salaries Survey (MWSS), which covers employees working in businesses with 20 or more employees in all industrial sectors in Great Britain (an adjustment is made for smaller businesses).

Is adjustment the new word for imputed? Anyway this was all reviewed by someone who pops up on here from time to time which is Dr. Martin Weale who if you recall regularly flip-flopped when he was at the Bank of England. The lack of self-employment data did not seem to get a mention from the good Dr. who is now a fellow of the Office for National Statistics in a Yes Minister style move.

New Information

As we lack official data we need to dig and mine for what we can and the Royal Society for the encouragement of the Arts Manufactures and Commerce has been on the case. It gives us a bleak house style opening.

Bleak headlines such as ‘80% of self-employed people in Britain live in poverty’, and ‘Self-employment used to be the dream. Now it’s a nightmare’ are increasingly common.

Fortunately they decide that for many the outlook is in fact much brighter.

Previous polling by the RSA found that just 19 percent of the self-employed started up in business to escape unemployment — a finding that is repeated across multiple studies.

If we look at the earnings of the self-employed we again start with a troubling view.

A recent study by the Resolution Foundation found that the average pay packet of the self-employed has barely moved in 20 years, while research by the Social Market Foundation shows that half the self-employed now earn below the National Living Wage. The Family Resources Survey appears to corroborate these findings, showing that the median full-time self-employed worker earns a third less than the typical employee,

But there is again a response in that this may be how many want it.

According to the Understanding Society Survey, the self-employed are nearly just as likely as employees to say they are satisfied with their income

The Financial Times points out that it looks like self-employment earnings are indeed lower than otherwise for some at least if this is any guide.

A new report by the RSA (the Royal Society for the encouragement of Arts, Manufactures and Commerce) confirms this has come with a price tag for the public purse: 18.8 per cent of the self-employed are in receipt of tax credits — payments to low-income working households — versus 10.6 per cent of employees.

The FT takes this further.

One in seven workers is now self-employed but their typical weekly earnings are only about £240 a week, less than they were 20 years ago after adjusting for inflation.

So about half of the official average weekly earnings figure.The Resolution Foundation put it like this last October.

The recovery in earnings over the last year means that they are almost back to levels last seen in the late-1990s at around £240 a week, though this is still 15 per cent down on 1994-95 returns.

Also the RSA point out that as we have discussed on here many times the self-employed are a very diverse bunch to say the least. They identify some 6 sub-groupings or if you prefer they have four more tribes than Frankie goes to Hollywood. They are Visionaries (22%), locals (13%), classicals (11%), survivors (24%), independents (19%) and dabblers (11%).

If we move beyond pay there are of course other differences with the employed.

There is no access to Statutory Maternity Pay should they become pregnant, nor is there recourse to Statutory Sick Pay should they fall ill at work. Recent government moves to establish a National Living Wage and to auto-enrol workers onto a private pension scheme have passed them by. Insecurity is inherent across all the above tribes and is as much a problem for the high-skilled as it is for the low-skilled.

Comment

Back on the 14th of December I looked at the situation of the self-employed via what has become called the gig economy.

In total I did five shifts, and earned an average of £8.10 per hour. The London living wage is supposed to be £9.75, according to London authorities. The national required living wage is £7.20 but goes to £7.50 in April next year.

This was Izabella Kaminska of the FT and as it is often necessary to be critical of that media organisation let us today look at its good side which is research and writing like this. Indeed as today’s self-employment article is by Sarah O’Connor it is a case of lets hear it for the girls (of the FT). But as the RSA reminds us the gig economy is only one sector of the issue although it gets media prominence. We learn that overall the self-employed earn less than the employed often quite a bit less as we wonder if that is why Dr.Weale and others omitted them from the official data series. However we need to add that some prefer it that way although of course some will not.

Oh and the official wage data also omits smaller companies as I pointed out earlier. How is that going? From the RSA.

Equally impressive has been the growth in the number of micro businesses, defined as firms with zero to nine employees. In 2000 there were 3.5m micro businesses in the UK. Today there are closer to 5.2m. While much of the expansion has been driven by one-person firms, the number of micro businesses with employees has also increased. 8.5 million people in the UK now own or are employed in a micro business.

Oh dear…….

The UK labour market gives a different view on construction output

Today sees the latest labour market data for the UK and as well as employment and unemployment numbers we get the most crucial metric of these times which is the average earnings data. However having noted that the BBC Breakfast business section informing everyone that we will get post Brexit data the picture is in fact more complex than that as the main numbers only cover June so we will only get a flicker, maybe. That is unless you wish to base your analysis on the long discredited claimant count numbers. I still remember the Yes Minister episode from 1983 which cast doubt on them. So what we will really get is a much clearer idea of the effect on the uncertainty caused by the run-up to the referendum.

What has been the impact of migrants on the UK labour market?

The Resolution Foundation has looked at the impact and decided this.

The increase in inward migration experienced over the course of the past decade coincided with a stagnation and then a fall in earnings, which some have linked.

They give us an idea of the change that took place.

It is now estimated that there are approximately 8.1 million migrants (or non-UK born individuals) living in the UK, up from 3.5 million in 1993

We learn something about wages as well.

On pay, migrants from the countries that joined the EU in 2004 earn around £8.30 an hour, compared to approximately £11.10 for natives. Workers from the EU ‘original’ countries earn the most, while the earnings of native workers and workers from the rest of the world are similar.

However they conclude this.

The result of our version of this approach shows that, in aggregate, migrants have had no effect on the wages or employment prospects of natives. However it is wrong to say that migration has had no effect at all on native wages because this overall picture masks the fact that across the distribution of natives of different educational levels or in different occupations there has been some effect, albeit very small.

Later though we get something which is rather awkward for that conclusion. The numbers below cover the 15 occupation sectors where we see the most migrants present. The highest percentage is in food manufacture and production where 25.5% of the workers are migrants.

Pay in these sectors averages £9.32 an hour, significantly below average native wages of £11.09. We know that lots of workers in these sectors are migrants from the EU ‘accession’ countries, whose average earnings are £8.33, £2.76 below that of natives

Sadly there is a fair bit of politicking in the report which as ever I have avoided. However I am l not convinced by the argument that you can be sure of a result by running an Ivory Tower style regression analysis. If you have a large increase in labour supply as it looks like food production has seen and then relatively low wages I am unclear as to how you can argue that effect is “small”. I would suspect that someone who had worked in that area might not think so. Care if needed though because there are quite a few areas that are much less affected and it is also true that this did not cause lower wages on its own but looks like something which gave them a nudge lower.

Today’s numbers

Firstly we saw a rather familiar trend in employment continue.

There were 31.75 million people in work, 172,000 more than for January to March 2016 and 606,000 more than for a year earlier…..The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.5%, the highest since comparable records began in 1971.

On the other side of that coin we also saw this.

There were 1.64 million unemployed people (people not in work but seeking and available to work), 52,000 fewer than for January to March 2016, 207,000 fewer than for a year earlier and the lowest since March to May 2008.

So the quantity situation continues on a positive path and the number below hints at a good quarter for productivity as measured by output per hour as we recall that GDP growth was 0.6%.

 ( Hours worked were ) 1.2 million (0.1%) more compared with January to March 2016

If we move to the wages numbers they were slightly better as well.

Between April to June 2015 and April to June 2016, in nominal terms, total pay increased by 2.4%, little changed compared with the growth rate between March to May 2015 and March to May 2016 (2.3%).

Moving to real pay we see this.

Between April to June 2015 and April to June 2016 in real terms (that is, adjusted for consumer price inflation) regular pay for employees in Great Britain increased by 1.9% and total pay increased by 2.1%.

Thus we learn that the picture running up to the Brexit referendum looks of the Goldilocks variety with employment rising, unemployment falling, real wages rising and probably productivity improving as well.

As to the one post Brexit number we got here it is.

For July 2016 there were 763,600 people claiming unemployment related benefits. This was: 8,600 fewer than for June 2016 (the first monthly fall since February 2016) and 27,100 fewer than for a year earlier.

So a fall except I stick with my point from earlier in the article that whilst we learn something from this care is needed. However it is hard not to have a wry smile at this from the Guardian an hour or so before.

Economists polled by Reuters are expecting a 9,500 jump in claims last month, following a rise of 400 in June.

Single month analysis

We can drill down further to single months but this also comes with a dose of caution. What we see on this basis is that wages growth was unchanged in June at 2.2% whereas employment did this 74.2% (April) then quite a surge to 74.7% in May then 74.6% in June. So it was better than the previous quarterly high but was a dip on May.

June did see a rise in the unemployment rate to 5.1% so maybe some pre Brexit uncertainty but it did come with the employment numbers described above.

Comment

Let me open with something which highlights the fact that we cannot take official numbers as gospel. Remember the lower construction output data? From @NobleFrancis

Construction employment in April-June 2016 was 2.0% higher than in January-March & 5.4% higher than a year ago.

I have made the point that these are inconsistent and they are. Here are the replies I got from him and another source of data in this area.

Lag indicator? Mix of work – building employs > infrastructure? But I don’t disagree with you  ( @brickonomics)

it would still be odd to see rising employment despite lags. ( @NobleFrancis )

So we know less than we sometimes think. We can say that the run up to the referendum was not “the end of the world as we know it” but we have a mixture of signals here. We could see upwards revisions to construction output which changes the narrative there and the numbers today are overall good. But the silver lining does come with a cloud which is the hint of more unemployment in June.

As to the Bank of England Agents they expect flat employment over the next 6 months and this for wages.

Growth in total labour costs had edged higher in manufacturing, but was little changed overall, with the majority of pay awards remaining in a range of 1%–3%.

 

 

 

 

Will a productivity renaissance rescue the UK economy?

It is that time of the month when the most crucial economic statistic for the UK is released. This has been true for a while although it was the unemployment numbers for the UK out of the labour market release that took centre stage for some time post credit crunch whereas now it is the wages or to be more precise average earnings numbers that do so. Sadly there are plenty of problems with this series so let me remind every one of the most glaring error.

The self-employed, HM Armed Forces and Government Supported Trainees are excluded from the statistics.

I have to confess a little bemusement as to why we exclude the armed forces but that merely adds to the issue of excluding the self-employed from the numbers. This is an issue in itself by is particularly highlighted if we look at a report conducted by the Office for National Statistics in August 2014.

Self-employment higher than at any point over past 40 years • Rise in total employment since 2008 predominantly among the self-employed

So we exclude what was then the fastest growing group? Let us look further into the detail.

Total employment in the second quarter of 2014 was 1.1 million higher than in the first quarter of 2008, just before the economic downturn that hit the UK. Of this increase, 732,000 was among people who are self-employed so the rise in total employment since 2008 was predominantly among the self-employed.

If we look into the numbers we see that it is now a substantial proportion of the workforce.

In 2014, 4.6 million people were self-employed in their main job accounting for 15% of those in work, which is the highest percentage at any point in the past four decades, since data were first collected. There were also an additional 356,000 employees who had a second job in which they were self-employed.

So we ignore them for earnings purposes! There is no excuse in terms of the numbers being fit for the last great recession as the grandly titled Professor Sir Charles Bean claims because the series only became our headline data source in the credit crunch era. The 2008 report of Dr Martin Weale (often at the scene of a economic crimes but usually never actually doing anything useful) had lots of technical recommendations but appears to have missed the rise in self employment which started in the early 1980s.

Do we think that it might have impacted the numbers? Hell Yes.

Average income from self-employment fallen by 22% since 2008/09

Today’s data

Time to bring out the trumpets and hopefully have something of a fanfare for the common man.

Between May to July 2014 and May to July 2015 in nominal terms (that is, not adjusted for consumer price inflation) both total pay and regular pay for employees in Great Britain increased by 2.9%. The last time a higher growth rate was recorded for regular pay was for the 3 months to January 2009 (3.1%).

Since real wages began to grow we have received an official analysis of them.

Comparing the three months to July 2015 with the same period in 2014, real AWE (total pay) grew by 2.8 per cent, compared with 2.6 per cent in the three months to June.

Using the official numbers gives us quite a push in nominal wages which since we have “noflation” gives a corresponding surge in real wages.

Some care is needed however if we recall that the RPI was be running at more like 1% and the RPIJ is now 0.5% so real wages based on them would be lower.

If you are looking for signs of even more wage growth in the month of July then wages rose by 3.7% on a year before and private-sector wages rose by 4.4%. So welcome for everyone except if you do the mathematics for the public-sector.

Oh how the Bank of England must wish that it had stayed with the optimism of its February Inflation Report!

we expect the strongest real income growth in over a decade actually.

Since then they have changed their minds several times proving that even when they get it right they then get it wrong.

Oh and I was expecting a good number but it did not require any great prescience as I merely observed the behaviour of someone who gets the data a day early!

Today we see inflation at zero while wage rises go from strength to strength. National Living Wage will help further.

Productivity is finally rising too

In another welcome development there are signs of an improving situation for UK productivity. There had been one or two flickers over the summer but take a look at this.

Total hours worked per week were 994.2 million for May to July 2015. This was:
• 4.0 million (0.4%) fewer than for February to April 2015
• 9.4 million (1.0%) more than for a year earlier

If we look at UK annual economic growth we see that this means that over the past year labour productivity has risen by around 1.5%. There has been an acceleration in the latest 3 months as economic growth of 0.6% according to the NIESR (National Institute for Economic and Social Research) has been accompanied by a 0.4% fall in hours worked meaning a ~1% productivity rise. Happy Days indeed.

The Quantity Numbers

In terms of employment these were generally welcome too.

There were 31.09 million people in work, 42,000 more than for February to April 2015 and 413,000 more than for a year earlier.

Also the gains have shifted from part-time to full-time work.

There were 22.74 million people working full-time, 361,000 more than for a year earlier. There were 8.36 million people working part-time, 52,000 more than for a year earlier.

Hours worked were also up on a year ago although here we do have a cloud in the silver lining as they fell in the latest 3 months. Whilst I welcome the impact on productivity we are left wondering if higher pay has led to less work in recent months.

Comment

As we are in the last days of a UK summer let us have a little sunshine! We have wages rising more like they used to combined with some building productivity growth. What’s not to like about that? Indeed the report of the Bank of England Agents back this up with several mentions of it.

The use of new technology and automation was said to be contributing to productivity growth and had softened the employment outlook slightly across sectors.

In case this was missed they had another go.

and to focus on productivity improvements

Whilst they do see a tighter labour market in some areas they do not see wages overheating in any way.

Outside sectors where the availability of skills was tightest, the majority of pay awards had been around 2%.

Where caution is required is in our knowledge of our labour market which the credit crunch era has exposed as one of those swimming without trunks when the tide went out. The wages of the self-employed are ignored for example and these days there are plenty of them .

self-employed people fell by 51,000 to reach 4.51 million

Also the numbers are relying on a surge in July and the series is unreliable on a single month basis. But with wages and productivity apparently rising let us sing along with the Fab Four.

Little darling
It’s been a long, cold lonely winter
Little darling
It feels like years since it’s been here

Here comes the sun
Here comes the sun,
and I say, It’s all right

Currency Wars

Regular readers will know that on here we like to look at things internationally so I enjoyed this reply on today’s numbers from WEAYL.

UK Private sector wages up 18% since July 2014 in euro terms?

A Personal Note

This was nice to read yesterday, and Michael Jordan’s number too.

welcome to ‘s UK & Ireland economists top 100. Straight in at #23.