Could we have already witnessed the worst that the much-heralded housing ‘crash’ has had to throw at us? Persimmon chief executive Dean Finch was prepared to stick his neck out this month after half-decent trading in October: “Given where we started the year, we’d have taken this in a heartbeat,” he said.
This and a swathe of other market intel continues to confound housing’s prophets of doom.
The two highest-profile house price indices, Halifax and Nationwide, often diverge in any given month. But in the latest releases, the lenders seemed joined at the hip: Halifax, the UK’s biggest, reported a 1.1% rise for October; for Nationwide, the rise was 0.9%.
These took the year-on-year rate of decline to 3.2%, from 4.5% in September, for Halifax; and to 3.3%, from 5.3%, for its rival. On cue, Rightmove’s monthly data quoted 3% as the cumulative fall in asking prices since the peak in May. More comprehensive HMRC data, taking in non-mortgaged deals, showed a 0.1% decline but this was only to September, after an 0.8% increase in August.
Several months ago, phalanxes of economists and journalists were prophesying a full-bloodied crash. There’s no standard definition of what that would equate to, but most observers would assume 10% at the minimum; 3%, and on a possibly improving trend, scarcely qualifies as a dent in the road.
In a conference call following Persimmon’s 7 October trading update, Finch said the market was “remarkably stable for the environment we’re in”. Pricing was “broadly stable” for the UK’s third-largest housebuilder by volumes. But, of course, it’s volumes that have suffered and September failed to deliver the traditional uptick in activity after the summer holidays.
The private sales rate for the housebuilder, which has a lower average sales price than most, fell 24% in Q3 2023, compared with the same period last year, at 0.48 sales per site per week. That implied a progressive weakening, following 0.62 in Q1 and 0.58 in Q2. But, possibly resonating with Bob Dylan’s musings that “the darkest hour is just before the dawn”, there was a strong pick-up from the start of October, up to 0.59 over the subsequent five weeks – not too far from the industry’s long-term run rate of 0.70 or so.
Persimmon’s close rivals Taylor Wimpey and Bellway appeared to concur in recent statements. “Taylor Wimpey’s profit update suggests the worst is over for housing sector” was the sheepish headline from the FT, persistently among the sector’s more jaundiced monitors. Bellway’s chief executive Jason Honeyman suggested there were even signs of light emerging in the South East, which Honeyman identifies as more sensitive to interest rate moves than the rest of the UK.
If so, the prognosis could be improving. Rightmove’s weekly fixed-rate mortgage deals index shows their cost sliding for 16 consecutive weeks. For instance, the average 85% loan-to-value, five-year, fixed-price product cost 6.18% in July; this week, it fell to as low as 4.93%.
The gap between rates on more expensive two-year deals and five-year loans has also been narrowing as debt markets have been betting the Bank of England is closer to the top of its cycle.
On this, there seems to be some dissention within Threadneedle Street. The bank’s chief economist Huw Pill last week told investors it “doesn’t seem totally unreasonable, at least to me”, to predict a rate cut next summer. This was somewhat at odds with his boss, governor Andrew Bailey, who, three days later, let it be known that he thought it was “too early” to talk about rate cuts. After Wednesday’s better-than-expected 4.6% inflation rate, guess who I’m betting on?
But it will take many cuts to get anywhere near the eye-wateringly low rates the public got used to. And that’s the crux of most of the doomsters’ case. Fair enough. But they have failed to take account of the fact that, although banks and building societies have been doling out cheap mortgages for a decade or so, since 2014, they have been required to stress-test customers’ ability to afford their loans at rates typically above 7%.
Chancellor Jeremy Hunt also introduced a support package in June to keep overstretched borrowers in their homes. It has been the absence of forced sellers, more than anything, that kiboshed predictions of a crash.
Persimmon et al have for months been reporting healthy interest among potential buyers on their websites; the sticking point was the appetite or ability to make a purchase. Falling rates and recovering confidence may be the catalyst. Maybe some of the lugubrious pundits might join them?
Alastair Stewart is an equities analyst and consultant