In this week's blog, we again return to house prices to unpack the latest round of Nationwide stats and explore what this may mean for the market, what may be priced in, and how our predictions earlier in the year are playing out.
Plunging straight into the data, the Nationwide house index shows that UK house prices rose by 0.9% month on month in October, with house prices down 3.3% on October last year; we talked extensively earlier in the year about an inflexion point where entrenched supply issues would begin to bid up price if only for a short period, creating a natural support point, and this may be the beginning of it. This is undoubtedly the opinion of Robert Gardner, the chief economist at Nationwide, who spoke in the Financial Times about a "constrained supply of properties on the market" and little sign of forced selling. To unpack the data further, Nationwide has said that the average house price was £259,423 in October, down from a peak of £273,751 registered in August last year.
This mirrors our internal interpretation; one of the issues with the ongoing UK inflation woes is that the labour market is relatively solid, and wages are increasing; ergo, arrears and forced selling aren't happening on any notable scale. Coupled with a more sensible level of leverage across the mortgage markets, we are not seeing stock return to the market in great swathes akin to the 2008 financial crisis, certainly not at a level we would need to see to compensate for the supply issues.
The Financial Times also cited that the Bank of England had published mortgage approval figures showing that approvals have fallen to a new low, with average rates sitting at 5% for the first time since the 2008-09 financial crisis. Sky News were slightly more bullish and optimistic on today's news, quoting Nicky Stevenson MD at Fine & Country estate agency group, who raises an alternative viewpoint that it's not necessarily supply; it's confidence, confidence off the back of the September rate announcements from the Bank, a pause in the tightening cycle potentially luring hesitant retail buyers off the sidelines and back into the market. This wouldn't necessarily be collaborated by the Bank's mortgage approval figures, but it reflects the conversations we are having with borrower clients in the commercial market; sentiment essentially makes the world go around, and the sentiment is starting to shift to the positive, tentatively at least.
One theory that we have posed in previous pieces is our belief that private equity will play a more significant role in UK domestic property, looking for weaknesses like water lapping against the cracks in a dam, first into commercial property that's been hardest hit by the cultural changes in office working, and then into the residential sector. The signs of this are everywhere; one notable headline of late was the acquisition of former WeWork property 99 Queen Victoria Street, the jewel in the former WeWork empires crown, as part of a strategy to direct property investments aimed at supporting the mitigation of climate change and the transition to net zero carbon. It's also part of a slighter older strategy to acquire distressed assets, where refurbishment and repositioning could add significant value, and the same process could easily be employed in the residential property sector. Looking more closely at Fidelity Global Property Fund at the time of writing, residential property comprised 29.7% of the fund, and office space 19.3%. Residential property acquisition may not make the headlines; however, it may play a significant role in underpinning the value proposition in the domestic property market; the quiet creep of international bargain hunters is ever-present in a globalised economy.
So, what does this say about house prices and the strength of the market our clients are selling into? To isolate the positives, the initial threat of a complete collapse in the UK housing market triggered by a perfect storm of rising rates & low demand has now disappeared from the media narrative for all the above reasons and many, many more. The "everything will be okay" narrative is finally underpinned with some data rather than unquestioning optimism, and some welcome positive sentiment is finally returning.
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