MacroScope

Right time to pump up UK housing market?

By Mike Peacock
October 8, 2013

The British government is poised to announce the extension of its “help to buy” scheme for potential home owners.

As of today, any buyer(s) of a property up to a value of 600,000 pounds ($960,000) who can put up a five percent deposit, will see the government guarantee to the lender a further 15 percent of the value so a bank or building society will only be lending on 80 percent of the property’s value. Until now, demands for cripplingly large deposits have shut many prospective buyers out of the market.

The big question is whether now – with property prices rising by around 3 percent nationally and by a heady 10 percent annually in London – is a sensible time to be doing this given Britain’s long history of housing bubbles.

With buying/selling and lending activity below long-term norms, the government and Bank of England argue there is no threat yet (although finance minister George Osborne has just given the BoE more powers to intervene if it changes its mind).

The real solution would be to build many more homes. If housebuilders leap into the fray on the back of this scheme then all may be well and good. But if they don’t…

A RICS housing report out overnight showed British house prices rose at their fastest rate in 11 years in September and sales hit a four-year high, while the British Retail Consortium said retail sales growth slowed a little last month.

The British Chambers of Commerce – which represents thousands of smaller businesses — reported its best quarter for domestic orders and sales for six years in the three months to September. It said quarterly growth in the third quarter could now hit 0.9-1 percent, while recent PMI surveys have suggested growth of up to 1.2 percent – i.e. nearly five percent on an annual basis.

The International Monetary Fund’s World Economic Outlook, due out later, will give updated growth forecasts for Britain among many others.

The central banks of France, Portugal and Slovenia are all producing regular reports. Banque de France’s monthly economics survey, just out, has not changed a vista of anaemic growth and has in fact cuts its third quarter growth forecast to 0.1 percent from 0.2.
Slovenia’s central bank will produce new 2013 and 2014 GDP forecasts with a minus in front of both numbers as the country struggles to avoid a bailout.

Portugal’s will also update its economic outlook for this year and next after its EU/IMF creditors approved the country’s bailout performance and detected fledgling signs of recovery. Both the prime minister and central bank governor are speaking at a conference.

The European Central Bank’s downbeat assessment of the euro zone economy, displaying a “weak, fragile and uneven” recovery, runs counter to the majority of recent data.

Even Italy and Spain are showing signs of life according to the survey evidence, which suggests the currency bloc as a whole looks set to pretty much replicate its 0.3 percent growth in the second quarter, nothing spectacular but a sign that recession is a thing of the past.
The German economy rebounded strongly in the second quarter, growing by 0.7 percent. It might not quite match that in Q3 but it may not be far off.

So does Mario Draghi know something we don’t or is he engaged in the ongoing battle to talk down money market interest rates?

German trade data, just out, showed exports rose a little less than expected in August with imports also subdued. Industrial orders figures are due later, and are expected to bounce after a weak showing in July. Spanish industry output numbers are also on the block. German Finance Minister Wolfgang Schaeuble and Bundesbank chief Jens Weidmann are speaking on the future of Europe and may have something to say.

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