Houselungo 30 Oct 22
Will house prices fall by 8% next year?
When Lloyds Bank say they expect house prices to fall by 8% next year, people sit up and listen. Lloyds Bank is the largest mortgage lender in the country and, therefore, in theory, at least, should have the hottest handle on house prices. When you're responsible for around one in three mortgages, it's very important to get your call on house prices right.
However, in our view, Lloyds Bank takes a prudent or conservative view when looking at house price forecasts and it is more prudent to prepare for the worst and hope for the best rather than prepare for the best.
Lloyds Bank's recent house price forecasts have tended to be too low, house price inflation has exceeded their forecasts in both 2020 and 2021, and this past performance plays into our theory that their modelling is conservative rather than hopeful.
We must also remember that Lloyds has also had to publish their forecasts before the new Chancellor presents his new economic plan and given the recent Government budget u-turns, it is a brave person who makes short and near-term economic forecasts before the chancellor has had his say. Some might say that today they have had to predict a moving target.
Has the race for space been won?
The latest research from The Halifax suggests that cities have driven house price growth this year, as demand slowed for the suburbs. Has the race for space had its day? It seems that as we left our cities it was more a case of hasta la vista baby than goodbye
The WFH Revolution
The COVID-19 pandemic led to one of the biggest social experiments we have ever seen, asking could the economy function if those who could work at home did work at home?
The answer was a resounding 'Yes', Working From Home (WFH) was no longer said with a knowing wink or a nod. During the COVID-19 pandemic, WFH came of age, and WFH was now legitimate.
WFH gave the nation a wonderful sense of freedom during the periods of lockdown, and many, including me, thought we had seen a paradigm shift in working patterns. I had hoped WFH would lead to a true levelling up of the economy, as we were released from tight and painful commuter belts we could live where we wanted to live, rather than within a reasonable commute time from our places of work. Rather than squeezing too many people in London and the South East, WFH freed us to explore. My hope was that wealth would move around the country, helping local businesses across the country and the city exodus would address some of the issues of housing affordability in our major cities.
As a nation, we embraced WFH wholeheartedly, and the race for space was on. Rather than being lockdown in an urban centre, we craved open spaces, bigger gardens and home offices. We could spend more time in bed, and more time with our families whilst working hours could remain the same. The canteen and the water cooler were replaced with zoom and WFH for many was the silver lining of the COVID cloud.
But, the times, they are a changing....
Have interest rates killed off equity release?
Equity Release hit the record books in Q3 2022, but have rising interest rates shut the book?
The Equity Release Council reported that homeowners took out 13,542 new equity release plans in Q3 2022, breaking the 13,000 barrier for the first time.
However, equity release loan activity fell by 10% in September 2022 as equity release interest rates surged.
Equity release means taking on debt not releasing equity
Herein lies the problem with equity release, the unfortunate problem is that equity release does not mean releasing equity at all, it means taking on debt and debt has to be paid for.
Rising interest rates coupled with the increases in the costs of living hit homeowners with a double whammy. As interest rates rise those older homeowners looking to release equity to help with living costs may find themselves priced out of the equity release market when they need it most.
Foxtons in the front foot
Foxtons published their Q3 trading update this week
What Foxtons said
Lettings revenue £29.2m up 18%
Home sales revenue £11.9m up 44%
Financial services revenue £2.8m up 37%
Much like Rishi Sunak during PMQ's yesterday, Foxton's new CEO Guy Gittins had a spring in his step as he delivered his first trading update to the market.
Whilst mortgage rates rose and the costs of living increased, Foxtons delivered revenue growth across all areas of its business: sales, lettings and financial services.
Foxtons is mindful of the challenges ahead, but their performance during the third quarter gives them confidence in the outturn for the full year, which they now expect to be ahead of previous expectations. This suggests that Mr Gittins honeymoon period may last longer than Mr Sunak's.
Twindig Housing Market Index
After a miserable few weeks, the Twindig Housing Market increased by 2.1% to 61.1 this week as a sense of stability returned in Westminster and residential investors gave their nod of approval (or at least the benefit of the doubt) to the new Prime Minister.
It was another interesting week for the housing market, Lloyds Bank certainly put the cat amongst the pigeons as its latest scenario analysis forecasts a base case where house prices fall by 8% next year. Whilst the story grabbed headlines and filled many column inches in the press, residential investors weren't hugely perturbed by the forecasts. All banks are required to publish their scenario analysis, and since the Global Financial Crisis, when they were criticised for overlooking the risks, all have tended to err on the side of caution, preparing for the worst and hoping for the best. If we compare what actually happens to Lloyds house price forecasts we find that, with hindsight, they are usually too pessimistic.
This week we also saw another chapter in the tale of differing estate agency models. The reassuringly expensive Foxtons delivered results ahead of expectations, whereas Purplebricks, the Ryanair of estate agency floundered, laying off staff and losing its recently appointed Finance Director.