At the time of writing, the latest house price figures have been published, and an interesting phenomenon has occurred, multiple news outlets have published seemingly divergent commentaries entirely at odds with each other based on the same data sets. Depending on your periodical of choice, the light at the end of the tunnel is either a beacon of hope or the 16.12 from New Street, so to provide a more equitable and moderate look at the facts, in this week's blog, we unpack the media take on the situation, and weigh that against our own critical thinking.

Starting with Evening Standard, who ran with a comparatively bullish outlook, stating a 'Soft landing' for house prices is still possible, based on the latest Nationwide figures putting the average cost of a home in the UK at £260,828 in July, which albeit being a 0.2% dip, doesn't really equate to a crash fuelled by soaring mortgage rates. This increases the annual rate of decline from 3.5% to 3.8%, which, based on our own analysis from Q1, is around where we expected the retracement to be at the year's halfway point. The article in the Evening Standard references the increase in cash buyers and higher-valued property sales of over £1 million in London, and that tallies to a certain extent with our thesis that an investment opportunity in an almost entirely commoditised housing market will provide a soft landing in terms of retracement.

There is still a substantial underlying problem with the mechanics of mortgages; there is no denying that for a first-time buyer, a 10% deposit equating to 55% of their gross annual pay and a monthly payment equating to 43% of their gross monthly income, is a wholly untenable and unrealistic situation long term if the Nationwide statistics are correct. First-time buyers have a crucial third-party component under the current system in their facilities via the Bank of Mum & Dad, and that could be a real problem for the market in a deep recession, where the oldest and friendliest micro banks in the world may run into their own liquidity issues.

One surprising headline in the Guardian was that UK Mortgage approvals rose to their highest level since October 2022 in June, as people raced to get ahead of the next MPC meeting. This is data from the Bank of England and is a fascinating example of how data can be wielded to be all things to all people; on the one hand, it shows a healthy demand is still there, a positive headline, but there is no way of discerning the volume of those applications that can be attributed to people coming off fixed deals, rather than new market entrants, a not so positive take. Some positive sentiment, though, is this same data set, according to Knight Frank, showed an uptick in tracker mortgages, showing, if nothing else, that retail is betting on rates levelling off towards the back end of 2023.

Finally, looking at the more sensationalist end of the spectrum at the time of writing, many outlets have run with house prices dropping at their fastest annual rate in 14 years, the speed of decline matching the burst of the housing bubble in 2009. Now this goes back to the point we made above regarding data being all things; if you look at the size of the V-shaped recovery in 2009, the speed of the decline was soon outpaced by the rate of the rally, and by March 2010, the correction was over, and the influx of cheap money had done its job. We fully anticipate a similar recovery into 2024 and beyond, except this time, rather than the suppressed 0.5% rate we saw in 2010, it will be backed by massive private equity investment either directly or through conduits to the market, such as investment platforms.

Our "hot take" is that equity investment will become a dominant force in UK housing because, looking globally, that's where the money is, and it's an opportunity that will inevitably be capitalised on. A recent article in Inside Housing with Savills discussed that investors and for-profit businesses would soon be delivering around half of all affordable UK housing, and that figure will only rise to include the delivery of a significant proportion of all private-sector homes. There is a clearly defined trend here of increasing private investor involvement, which will play a massive part in the strength of the housing sector and the speed of its recovery.

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