uk housing market: do the green shoots have roots? martin gahbauer chief economist nationwide...
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UK HOUSING MARKET:Do the green shoots have roots?
Martin Gahbauer
Chief Economist
Nationwide Building Society
Outline
The big picture
Current market trends
What is the true affordability picture?
Longer term market considerations
The big picture – 4 possible scenarios
W shapedouble dip
L shape
V Shape
Gradual recovery
What sort of recovery?
The big picture – recent trendsCIPS PMI Surveys
30
35
40
45
50
55
60
65
70M
ay
-97
Ma
y-9
8
Ma
y-9
9
Ma
y-0
0
Ma
y-0
1
Ma
y-0
2
Ma
y-0
3
Ma
y-0
4
Ma
y-0
5
Ma
y-0
6
Ma
y-0
7
Ma
y-0
8
Ma
y-0
9
Source: Markit
Manufacturing Services
The big picture – Labour marketMonthly change in unemployment claims ('000s)
-40
0
40
80
120
160
Apr
-04
Jul-0
4
Oct
-04
Jan-
05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Source: ONS
Average earnings growth (% y/y)
-1
0
1
2
3
4
5
6
Mar
-01
Sep
-01
Mar
-02
Sep
-02
Mar
-03
Sep
-03
Mar
-04
Sep
-04
Mar
-05
Sep
-05
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Source: ONS
3 month change in vacancies ('000s)
-60-50-40-30-20-10
01020
Apr
-04
Aug
-04
Dec
-04
Apr
-05
Aug
-05
Dec
-05
Apr
-06
Aug
-06
Dec
-06
Apr
-07
Aug
-07
Dec
-07
Apr
-08
Aug
-08
Dec
-08
Apr
-09
Source: ONS
Unemployment rate (%)
0
2
4
6
8
10
12
14
Mar
-82
Mar
-84
Mar
-86
Mar
-88
Mar
-90
Mar
-92
Mar
-94
Mar
-96
Mar
-98
Mar
-00
Mar
-02
Mar
-04
Mar
-06
Mar
-08
Source: ONS
Recent housing market trends - ActivityHousing market activity
0
20
40
60
80
100
120
140
160A
pr-
87
Ap
r-8
9
Ap
r-9
1
Ap
r-9
3
Ap
r-9
5
Ap
r-9
7
Ap
r-9
9
Ap
r-0
1
Ap
r-0
3
Ap
r-0
5
Ap
r-0
7
Ap
r-0
9
Source: Bank of England, HMRC
Mortgage approvals ('000s) Property transactions (inc cash)
Recent market trends - Prices3 month on 3 month house price inflation (%)
-6
-5
-4
-3
-2
-1
0
1
2
3
4M
ay
-05
Ju
l-0
5
Se
p-0
5
No
v-0
5
Ja
n-0
6
Ma
r-0
6
Ma
y-0
6
Ju
l-0
6
Se
p-0
6
No
v-0
6
Ja
n-0
7
Ma
r-0
7
Ma
y-0
7
Ju
l-0
7
Se
p-0
7
No
v-0
7
Ja
n-0
8
Ma
r-0
8
Ma
y-0
8
Ju
l-0
8
Se
p-0
8
No
v-0
8
Ja
n-0
9
Ma
r-0
9
Ma
y-0
9
Source: Nationwide
Recent trends – Supply/demand balanceInventory of unsold homes (months)
0
1
2
3
4
5
6
7
8
9
Ap
r-9
5
Ap
r-9
6
Ap
r-9
7
Ap
r-9
8
Ap
r-9
9
Ap
r-0
0
Ap
r-0
1
Ap
r-0
2
Ap
r-0
3
Ap
r-0
4
Ap
r-0
5
Ap
r-0
6
Ap
r-0
7
Ap
r-0
8
Ap
r-0
9
Source: RICS, Nationwide calculations
Recent trends – Restricted supplyUnsold stock per surveyor
50
55
60
65
70
75
80
85
90
95A
pr-
03
Ju
l-0
3
Oc
t-0
3
Ja
n-0
4
Ap
r-0
4
Ju
l-0
4
Oc
t-0
4
Ja
n-0
5
Ap
r-0
5
Ju
l-0
5
Oc
t-0
5
Ja
n-0
6
Ap
r-0
6
Ju
l-0
6
Oc
t-0
6
Ja
n-0
7
Ap
r-0
7
Ju
l-0
7
Oc
t-0
7
Ja
n-0
8
Ap
r-0
8
Ju
l-0
8
Oc
t-0
8
Ja
n-0
9
Ap
r-0
9
Source: RICS
Recent trends – House buildingResidential housing starts and completions
in England
15,000
25,000
35,000
45,000
55,000M
ar-9
2
Mar
-93
Mar
-94
Mar
-95
Mar
-96
Mar
-97
Mar
-98
Mar
-99
Mar
-00
Mar
-01
Mar
-02
Mar
-03
Mar
-04
Mar
-05
Mar
-06
Mar
-07
Mar
-08
Mar
-09
Source: DCLG
Starts Completions
Recent trends – Restricted supplyRental supply and rent expectations
-60
-40
-20
0
20
40
60
2005 2006 2007 2008 2009
Source: RICS Residential Lettings Survey
New instructions Rent expectations
What is the true affordability picture?Mortgage payments as % of take-home pay
0%
10%
20%
30%
40%
50%
60%
70%
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
Source: ONS, Nationwide calculations
Long run average
What is the true affordability picture?House price to earnings ratio
0
1
2
3
4
5
6
7
Ma
y-7
4
Ma
y-7
6
Ma
y-7
8
Ma
y-8
0
Ma
y-8
2
Ma
y-8
4
Ma
y-8
6
Ma
y-8
8
Ma
y-9
0
Ma
y-9
2
Ma
y-9
4
Ma
y-9
6
Ma
y-9
8
Ma
y-0
0
Ma
y-0
2
Ma
y-0
4
Ma
y-0
6
Ma
y-0
8
Source: ONS, Nationwide calculations
Long run average
What is the true affordability picture?
First-time buyer affordability
0%
20%
40%
60%
80%
100%
120%M
ar-8
3
Mar
-85
Mar
-87
Mar
-89
Mar
-91
Mar
-93
Mar
-95
Mar
-97
Mar
-99
Mar
-01
Mar
-03
Mar
-05
Mar
-07
Mar
-09
Source: CML, Nationwide calculations
Deposit as % of income
Interest payments as % of income
Total interest and deposit
Longer term considerations – Public debtPublic finances (% of GDP)
-14-12-10
-8-6-4-202468
101214
20
07
-8
20
08
-9
20
09
-10
20
10
-11
20
11
-12
20
12
-13
20
13
-14
Source: HM Treasury, 2009 Budget
0
10
20
30
40
50
60
70
80
90
100
Public sector balance Primary balance
Maastricht debt (rhs)
Longer term considerations – Exit from QEUK monetary base (£bn)
0
20
40
60
80
100
120
140
160
180F
eb
-06
Ap
r-0
6
Ju
n-0
6
Au
g-0
6
Oc
t-0
6
De
c-0
6
Fe
b-0
7
Ap
r-0
7
Ju
n-0
7
Au
g-0
7
Oc
t-0
7
De
c-0
7
Fe
b-0
8
Ap
r-0
8
Ju
n-0
8
Au
g-0
8
Oc
t-0
8
De
c-0
8
Source: Bank of England
Longer term considerations – SupplyProjected household growth against current
housebuilding
0
50,000
100,000
150,000
200,000
250,000
300,000
Projected annual household growth Housing stock growth 2008
Source: DCLG. Figures cover England only
Conclusions Macro picture looking better but don’t assume we are out of the woods
Housing market transactions have bottomed at very low level
Housing only affordable if you assume interest rates will remain low forever and everyone has the required deposit
Deterioration of public finances could put upward pressure on mortgage rates in the long term
Housing construction not keeping pace with household growth