ROOF Blog

The British housing market is improving at a faster rate than property prices across most of the rest of Europe, a report by the Royal Institution of Chartered Surveyors (RICS) has found. House prices rose in only five European countries, including Britain, during 2009. But other countries continued to suffer a sharp market correction, with prices diving by up to 53%. RICS warned that countries with vulnerable economies would continue to suffer from price falls and depressed markets during 2010. Norway led the revival, with property prices in the country rising by 12% during 2009, followed by Finland at 8% and Sweden at 7%. Britain was the fourth best performing country, with the average cost of a home ending the year 1% higher than it started it, although house prices had risen by 10% from their lowest point in April.

House prices fell in the North and the West Midlands in December as market activity dampened, exposing those regions where the recovery has been weakest. According to the Royal Institution of Chartered Surveyors (RICS), last month’s figures showed five per cent more surveyors in the West Midlands reporting prices falling rather than rising, and seven per cent more in the North. The industry body added the East Midlands and Northern Ireland to its list of areas at risk of further immediate falls. Simon Rubinsohn, chief economist at RICS, said: ‘These regions have been among the weakest for months. The best we can say is that they have stabilised lately.’

Bargain-hunters returned to the house building sector yesterday after a leading broker anticipated healthy gains for investors over the next year.

Citigroup laid the foundations for a recovery after turning buyer of Redrow, up 8½p to 131p, Barratt Developments, 6½p higher at 116p and Taylor Wimpey, 1¾p better at 35½p.

The sector has lost a fifth of its value over the past quarter over consumer spending fears for next year, but house prices, mortgage applications and housing transactions data indicate a more positive story, according to Citigroup, which reckoned shares could rebound at least 30 per cent.

Evidence is growing that the worst is over in the recession-hit property market following a string of cautiously optimistic assessments from the UK’s leading housebuilders.

Persimmon set the tone this month when it predicted a moderate recovery. Barratt, the UK’s largest housebuilder, and Bovis Homes echoed that sentiment with similarly upbeat forecasts.

The number of new homes being built rose to its highest level for over a year in the three months to October, with work starting on 25,000 new properties, an increase of 27 per cent compared with the same period last year.

However, housebuilders are reluctant to be too bold over the prospects of a sustained recovery because of the fragility of the market and the uncertainty over the continuing availability of mortgages.

‘We are way ahead of where we were this time last year, but we’re not out of the woods yet and there could still be plenty of problems for the industry were the banks to pull back lending,’ said Bovis’ chief executive David Ritchie.

The Council of Mortgage Lenders (CML) has cut its forecast for the number of repossessions this year to 48,000.

Having anticipated 75,000 repossessions in 2009 in last year’s housing market forecasts, the forecast had already been revised down to 65,000 in June, but is now being cut again in recognition of lender forbearance, government measures and the beneficial effect of continuing low interest rates which are helping most borrowers facing difficulty to keep their homes.

Commenting on the latest arrears data and on the new forecasts, CML director general Michael Coogan said: ‘In terms of new lending next year, we expect a modest increase.

‘But it is difficult to see the case for a dramatic upturn in the absence of significant improvement in the wider economic picture. There is a risk that public spending cuts and higher taxes could choke off recovery. So, although we have become more optimistic, we remain cautious about market prospects.’

The immediate prospects for Britain’s economy are grimmer than in any previous forecast and output is unlikely to revert to pre-crisis levels before 2011, the Bank of England said in a stern warning yesterday.

Presenting the Bank’s quarterly Inflation Report, the Governor, Mervyn King, was at pains to stress that, while the economy might soon return to modest growth, that was not necessarily a cause for ‘bunting and celebration’.

The fall in GDP of about six per cent had been severe and the ‘prolonged period of balance-sheet adjustment’ now beginning would hold back growth, Mr King said, adding that output was ‘unlikely, at least for a considerable period, to return to a level consistent with a continuation of its pre-crisis trend’.

The economy, he said, had ‘only just started on the road to recovery’ and the Bank believed that inflation was ‘on balance more likely to be below the target than above it for most of the forecast period, though by the end the risks are broadly balanced’.

The economy shrank by 0.4 per cent in the three months to the end of October, an unchanged rate of contraction from the third quarter, the National Institute of Economic and Social Research (NIESR) has estimated.

The projection of continued weakness came after official figures showed that industrial production in September had picked up after factory stoppages caused a sharp fall in output during the summer, but there were no signs yet of a sustained upturn.

NIESR director Martin Weale, said: ‘People have been hoping for a clear recovery and that isn’t visible yet. The past pattern doesn’t lead us to think there has been a strong turnround.’

Mr Weale foresees the economy bouncing along the bottom at depressed levels of output for some time, even if spending brought forward to the fourth quarter to avoid the hike in VAT rates early next year provides a modest boost to growth in the short term.

Government spending cuts on construction risk deepening the recession and making it harder for the economy to recover in future, the CBI employers’ organisation have warned.

Every £1 spent on construction generates a £2.84 increase in national income according to a report by the CBI’s UK Contractors’ Group, and cuts would diminish gross domestic product (GDP) to the same extent.

John McDonough, chief executive of Carillion and chairman of the CBI’s construction council, said the sector was likely to be in the line of fire when the government attempts to narrow its yawning budget deficit:

‘The public purse can’t afford what it has afforded in the past, but we need to be prepared for what’s going to happen in the next 12 months,’ he said.

‘Construction makes up around 8 per cent of UK GDP and a similar proportion of employment, but it has been hit hard by the recession.

‘Its rate of redundancy, at 28 per 1,000 employees is the highest of any sector, and the short-term nature of much construction work means that the true decline in employment is likely to be greater.’

Planning applications received by district-level authorities in England in the past quarter are down 30 per cent in year on year figures, Communities and Local Government data shows, with decisions made on residential developments of 10 or more homes falling by 46 per cent. The CLG acknowledged that the recession has had an impact on the number of applications, but added it would continue to streamline the planning system in anticipation of the recovery.

Economists have been quick to dampen speculation that the housing market has hit the bottom after yesterday’s figures from Halifax showing house prices had increased 2.6 per cent in May. The jump in house price inflation was the third in the past 21 months, but even Halifax cautioned reading too much into the figure. Other experts called the increase a ‘pause for breath’ before further price falls, as rising unemployment and low wages stymie recovery.