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Mixed messages on economy

Yesterday the Halifax House Price Index for May was published and showed that prices had risen by 2.6% during the month. This followed three successive monthly falls of between 1.8% and 2.3%. Is this a sign of a much needed pick-up in the market? Well, on the surface it is good news but we must keep it in context in that it is only one month’s figures.


When we look at the three months to May compared to the previous three months, house prices were actually 3.1% lower, although this in itself showed that the rate of decline had slowed from the 5-6% regularly recorded between June 2008 and January this year. Also, prices in May were still 16.3% down on the same month a year earlier. In fact, in previous housing recessions house prices do not always move in the same direction on a monthly basis. During 1991-1992 when prices fell by 11% there were five monthly rises during that period.


The increase in house prices in May are not conclusive of an upturn in the housing market

The increase in house prices in May are not conclusive of an upturn in the housing market

On the good news side, Bank of England figures are showing that the number of mortgages approved have risen 19% between the final quarter of 2008 and the first quarter of 2009. Although approvals in the three months to March were still 45% down on the same period last year. Also, lower interest rates have made house buying more affordable. For example in the third quarter of 2007, typical mortgage repayments for a first time borrower reached 48% of average disposable earnings, yet in the first quarter of this year the figure had fallen to 31%. Finally, this latter statistic has helped more first-time buyers get into the market. In March, 40% of all those buying a home with a mortgage were first-time buyers, which was the highest percentage figure since April 2005.


On the negative side, however, the housing market is still facing the effects of higher unemployment and the fact that many mortgage lenders have withdrawn from the market. Also, those who are still offering mortgages have reduced the loan-to-value ratios, which means that borrowers are now having to find a larger percentage deposit before they can buy a property.


By contrast, the Society of Motor Manufacturers and Traders (SMMT) said yesterday that new car registrations fell by 24.8% in May compared to a year ago, although this was a little below the 27.9% cumulative decline recorded in the first five months of 2009. This was the 13th consecutive month of declining sales.


The SMMT did say that the government’s new car scrappage scheme had resulted in the ordering of more than 35,000 new cars since it started on May 18th. This could have a greater impact in the months ahead and it is regarded as being too soon to assess the full effect this scheme is having. Some car manufacturers have criticised the government scheme which offers £1000 per vehicle, which is matched by the same amount by the car makers themselves, when a car which is more than ten years old is scrapped. The car makers are concerned that the scheme is not as generous as it is in Germany and some other EU countries, and in fact car sales across western Europe are reported as only having fallen by 4.2% in the year to May.

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Posted in Housing, Manufacturing, recession, UK industry

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