The UK housing market’s fate is currently uncertain, with upcoming economic data this week potentially influencing its direction. The focus is on the impact of jobs, wages, and inflation data, which could sway sentiments on future interest rates, affecting mortgage and savings rates.
Bloomberg’s money expert John Stepek gave his overview –
Key Takeaways:
- Importance of Upcoming UK Data: Economic data this week could give insight into the UK’s inflation status, particularly in light of a recent decrease in the energy bill component. This could influence decisions on interest rates.
- RICS Survey: The Royal Institution of Chartered Surveyors (RICS) survey for July provides valuable timely insights. Historically, when the RICS survey indicates expectations of price drops (below zero), actual house prices often follow this trend. The recent survey was more pessimistic than other headline figures, suggesting slight house price decreases.
- Sales vs. Prices: Even though house prices haven’t significantly dropped, there’s been a noticeable decline in the number of transactions. For estate agents and surveyors, fewer sales mean no commission, which is more concerning than a mere drop in prices.
- Interest Rate Influence: A recent 0.5% bank base rate rise in June may have influenced buyer behaviors, with more buyers offering prices below asking values. Sellers, however, haven’t been as willing to accept these reduced offers, but this might change with an increase in unsold inventory.
- Mortgage Rates: Mortgage rates have stabilized, with the Bank of England adjusting their rates based on the market. The bank’s rate changes have been influential on market dynamics.
- Pros & Cons for House Prices:
- Supporting Factors: There’s a demand-supply squeeze for renters, suggesting some might prefer owning over renting, especially if mortgages cost the same as rents. Wages are also growing faster than prices, improving affordability.
- Challenges: Sellers might be more willing to reduce prices, especially considering the significant price hikes during the Covid-19 pandemic. Mortgage costs are also higher than the previous year and unlikely to reduce. Moreover, there’s a noticeable trend of buy-to-let landlords exiting the market.
- Optimal Outcome: Ideally, a slight decrease in house prices, combined with a wage increase, would enhance affordability without causing economic stress. Given the UK economy’s resilience, this outcome is still possible.
- Conclusion: Achieving the desired balance in the housing market is challenging. Real wage growth could deter the Bank of England from making interest rate adjustments. Upcoming economic data this week will shed more light on the situation.