As ever there is plenty of news about the UK housing market around but let us start with a consequence of government action which led to this reported by the BBC at the end of last week.

The boss of house building firm Persimmon has walked off in the middle of a BBC interview after being asked about his £75m bonus.

“I’d rather not talk about that,” Jeff Fairburn said, when asked if he had regrets about last year’s payout.

The £75m, which was reduced from £100m after a public outcry, is believed to be the largest by a listed UK firm.

The BBC even provides a pretty good explanation of why this is a hot topic.

A combination of rising house prices, low interest rates enabling people to borrow more cheaply and government incentive schemes have been credited with driving all housebuilder shares higher.

In particular we find ourselves looking at a bonus scheme set at £4 compared to a payout based on one of £24 in case you wonder how we got to such an eye watering amount. But the real problem is that Help To Buy provided what is called in economic theory excess profits for housebuilders. We have looked before at how it helped them to make high profits on the sale of each house and it also boosted volumes in a double whammy effect. So in turned into help for housebuilders profits and bonuses. Sadly it also showed the weakness of shareholders these days as only 48.5% of Persimmon shareholders voted against this at their annual general meeting, which begs the question of what would be enough greed to provoke a shareholder revolt.

What about now?

Here is the result of the latest Markit Household Finances survey.

UK households are generally projecting higher
house prices over the forthcoming 12 months in
October, but the degree of optimism regarding
property values dipped to the lowest since the
immediate aftermath of the EU referendum in July
2016.

Sadly for Markit recorded time seems to have started in July  2016 because if we look back we see some interesting developments. For example the reading in early 2014 at around 75 was the highest in that series. This means that those surveyed not only realised the UK economy was picking up but seemingly had figured out the determination of the Bank of England and UK government to drive house prices higher.

Also another piece of news hints at a change. From Financial Reporter.

The proportion of homes in England and Wales bought with cash fell to 29.6% in H1 2018, according to Hamptons International, the lowest figure since its records began in 2007.

In H1 2007, 33.6% of homes were purchased with cash, peaking in H2 2008 at 37.8%.

In H1 2018, 113,490 homes were cash purchases, totalling £25.3 billion in value according to Land Registry – the lowest level in five years and a drop of 21% compared to H1 2017.

You may not be heartbroken at the main reason why.

Hamptons International says the downward trend in the proportion of homes bought with cash reflects a drop off in investor and developer purchases. Countrywide data shows that in H1 2018 investors accounted for 24% of cash purchases, down from 32% in H1 2007 and a peak of 43% in H1 2008.

The same goes for developers who purchased just 2% of the homes bought with cash in H1 2018, down from 6% in H1 2007.

What about the house price indices?

The official data released last Wednesday told us this.

Average house prices in the UK have increased by 3.2% in the year to August 2018 (down from 3.4% in July 2018), remaining broadly stable at a national level since April 2018 .

So a welcome slowing from the period where annual growth remained about 5%. But the truth is that a lot of the change is represented by one place.

 The lowest annual growth was in London, where prices decreased by 0.2% over the year, down from being unchanged (0.0%) in the year to July 2018.

London has affected the area around it to some extent as well but much of the rest of the country has carried on regardless.

A somewhat different picture was provided on Friday by LSL Acadata.

At the end of September, annual house price growth stood at 0.9%, which is the lowest rate seen since April 2012, some
six and a half years ago.

They take the Land Registry data of which 35% is available now and have a model to project that as if 100% was in. They then update the numbers as for example around 80% should now be in for August. So taking what should be, model permitting, the latest data shows a much clearer turn in the market and they expect more.

Our latest outlook for the 2018 housing market suggests that the annual rate of house price growth will be in negative territory by the end of the year.

One reason for that is simply the trend is your friend.

This was the sixth month out of the last seven in which monthly rates have fallen, with the combined decline since February totalling some -2.0%. The average house price in England & Wales now stands at £302,626. This price is already some £2,240, or 0.7%, below the level of £304,866 seen last December, meaning that it will take a number of months of house price increases to make up this shortfall.

Also they point out that this has taken place in spite of the economic environment still being very house price friendly.

All this comes at a time when interest rates are at almost historic lows, mortgage supply is good, the number of people in work is higher than a year earlier, and average weekly earnings have increased by 2.4%, on a year-on-year basis. The housing market should be booming.

They would be even more bullish if they realised wage growth was 2.7% rather than 2.4%. There is also an element of “reality was once a friend of mine” below as we wonder what it would take for them to notice that this has been happening for some time?

While current initiatives (Help-to-Buy and Stamp
Duty relief) have relatively minimal overall effect on prices, as government continues to ratchet up the initiatives, the
risk is that these in turn could simply add to the affordability problem by causing prices to rise

This has particularly affected younger people which they do seem to have noted.

highlighted the falls in home ownership amongst 25-34-year-olds over the last 20 years, despite endless government initiatives to rectify the situation. As the report notes “Since 1997, the average property price in England has risen by 173% after adjusting for inflation, and by 253% in London. This compares with increases in real incomes of 25- to 34-year-olds of only 19% and in (real) rents of 38%.”

Some night think that raising prices some 173% above inflation was quite enough to cause an affordability problem!

Comment

UK house prices have proved to be very resilient and I mean that in the commonly used version of its meaning, not the central banking one. I thought that the real wage decline in 2017 would send annual growth negative but so far it has resisted that. However the LSL data set suggests it may finally be quite near.

As ever the danger is of the UK establishment panicking just like they did in 2012/3 and pumping it up, one more time. Or as LSL Acadata put it.

Announcements on Help-to-Buy, Starter Homes and possibly a Rent-to-Own programme based around giving CGT relief to landlords have all been mooted.

Personally I think we have had way too many announcements and initiatives which via windfalls to existing house owners and especially house builders have made the situation worse rather than better. For now the Bank of England at least seems stymied but of course this is the one area where they can be both inventive and innovative.