Housing market ‘double dip’ fears as mortgage lending crashes to new low

By Daily Mail ReporterLast updated at 3:54 PM on 31st August 2010

Net lending second lowest figure ever recorded
Prices could fall 3% during the second half of this year
House prices to drop around 5 per cent next year
Confirmation housing market is heading for ‘double dip’
There were new fears for the state of the UK housing market today after mortgage lending dived to the second lowest figure ever recorded.
Lending fell sharply in July as activity in the housing market remained subdued, new figures showed.
Net lending, which strips out redemptions and repayments, totalled just £86 million during the month - a steep fall from June’s £518 million, according to the Bank of England.
The figure was the second lowest since the Bank’s records began in 1993, although there have also been two months when net lending was negative.

Double dip fear: Experts say house prices could to fall by around 3 per cent during the second half of this year, followed by a drop of around 5 per cent in 2011.

The number of mortgages approved for house purchase edged ahead only slightly during the month, rising to 48,722, well down on the levels of more than 100,000 a month seen during the housing boom.
The figure was also down on November’s recent high of just over 59,000, as the housing market failed to benefit from its traditional summer bounce.
The subdued lending figures have added to concerns among economists that the housing market is heading for a fresh round of price falls.
 

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UK house prices recover in July, says Halifax

The average house price is now £167,425, which is 16pc below the peak seen in August 2007 but 8.3pc above its trough in April 2009.
Halifax said the increase in the number of properties for sale over the past few months, boosted by the recent abolition of Home Information Packs (HIPs), has relieved much of the pressure which was driving up prices in 2009.
June’s fall of 0.6pc, which followed price declines in April and May, came amid uncertainty over the impact of Chancellor George Osborne’s emergency Budget. Analysts had forecast a monthly fall of 0.3pc.
Halifax housing economist Martin Ellis said: “The mixed pattern of monthly rises and falls over the first seven months of the year is consistent with a slowing market. It is also in line with our view that house prices will be broadly unchanged over 2010 as a whole.”
He said the increase in the number of properties for sale over the past few months, boosted by the recent abolition of HIPs, had relieved much of the pressure that was driving up prices in 2009.
“Low interest rates and a recovering economy, however, are underpinning demand and continue to support the market,” Mr Ellis said.
Howard Archer, economist at IHS Global Insight, said: “We still think the overall evidence does point to pretty soft activity — more houses coming on to the market and a softening of prices.”
Recent official data have shown mortgage lending remains weak and approvals for home purchase loans - a lead indicator of house prices - have held at low levels.
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Housing market to stay flat until 2013

CEBR forecast a 6.7pc rise in house prices this year, slowing to a 2.7pc rise next year and 5pc in 2012.
The warning came as the MPC is expected to leave interest rates at 0.5pc on Thursday, where they have been since March 2009, as part of the committee’s emergency response to the crisis.
The decision to maintain an ultra loose monetary policy stance has proved more tricky in recent months however as inflation has been above 3pc since the beginning of the year, meaning the MPC has failed to meet its 2pc target.
As recently as last week Mervyn King, the Bank’s Governor, signalled it would be too early to start tightening policy because it could not be guaranteed that economic recovery in the UK was sustainable.
That call comes despite three consecutive quarters of growth, with most recently a 1.1pc increase in gross domestic product in the second quarter, which surpassed expectations.
“The news that the UK economy grew by a much larger-than-expected 1.1pc quarter-on-quarter in the second quarter promises to make the August meeting of the MPC a spiky affair,” said Howard Archer, chief UK economist at IHS Global Insight.
The risks to growth include the Coalition’s £113bn of fiscal tightening planned over the next five years, as well as weakness in the eurozone – the UK’s largest export market – exacerbated by the Greek debt crisis. Mr King said last week that the failure of banks to lend to businesses was also a major threat to the economy, and the National Institute of Economic and Social Research warned that a quarter or two of contraction this year or next was quite possible.
The MPC will have access to the Bank’s latest forecasts when it makes its decision next week, ahead of its quarterly Inflation Report on August 11. Fathom Consulting, set up by a group of former Bank economists, said the new forecasts would give the MPC a chance “to get off the fence” and make clear its views on the impact of fiscal policy on the economy.
“The Bank of England’s recent forecasting record has been lamentable, not least because it has failed to explicitly account for changes in fiscal policy. We expect that to change with the publication of the August Inflation Report, which could set the stage for the re-introduction of quantitative easing,” said Danny Gabay, director at Fathom.
The MPC is expected to maintain its quantitative easing programme at £200bn of asset purchases when it votes on Thursday, but has always said it has the option to extend the scheme should conditions justify it.
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Interest rate rebel may get support

By Dan Atkinson, Mail on Sunday Economics EditorLast updated at 11:04 PM on 31st July 2010

Base rate rebel Andrew Sentance could this week rally others to the cause of higher borrowing costs. He and fellow members of the Bank of England’s Monetary Policy Committee gather on Wednesday for what may be a pivotal meeting for the future of interest rates.
Though the 0.5 per cent base rate is expected to remain, three factors make it more likely that other MPC members could join him in urging an increase, making this the monthly meeting at which the Bank starts to change course on monetary stability.
First, the second-quarter figures for growth of Gross Domestic Product last month showed expansion of 1.1 per cent in the second quarter, nearly double City forecasts. Sentance argues this could fuel inflation unless rates are increased.

Interest rates: Fellow members of the Bank of England’s Monetary Policy Committee could join Andrew Sentance in calling for an increase

Second, August is one of the months in which the Bank publishes its quarterly inflation report. The MPC will see this before it votes on Thursday and, on past form, it is four times more likely to change rates during a month with a report than in one without.
Third, this will be the first meeting attended by new member Martin Weale, the former director of the independent National Institute of Economic and Social Research.
 

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US economic growth slows to 2.4%

30 July 2010 Last updated at 10:48 ET

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Consumers fear the recovery will be very slow and painful

US economic growth slowed between April and June, with GDP growing by an annualised rate of 2.4%, the US Commerce Department has said.
This compares with an annual rate of 3.7% in the previous quarter.
The second quarter figure is a first estimate, and could be revised either up or down in the coming months.
There are growing fears about the strength of the US economic recovery, particularly concerning the country’s high unemployment rate of 9.5%.
Despite the slower rate of growth, economic adviser to the White House Christine Romer said: “This solid rate of growth indicates that the process of steady recovery from the recession continues.
“Nevertheless, faster growth is needed to bring about substantial reductions in unemployment.”
Upward revision

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Double-dip feared as US economic growth loses pace

The US Commerce Department also revised downwards GDP figures all the way back to the beginning of 2007.
The second-quarter slowdown led economists to question whether the US might be poised to enter a period of negative growth later in the year, leading to a much-feared double-dip recession. The Dow Jones fell sharply after the release of the GDP data before recovering ground to settle down 40.72 at 10,426.44 in lunchtime trading.
“The post-recession rebound is history,” said Bart van Ark, chief economist for the Conference Board, an economic think-tank.
Economists had predicted second-quarter growth of 2.5pc, but their disappointment was compounded by the revised data for the first three months of 2010.
Consumer spending – which accounts for two-thirds of US GDP and is seen as a lead indicator of economic recovery – slowed, rising by 1.6pc in the quarter, compared with 1.9pc in the prior three months. The savings rate rose to 6.2pc as consumers instead put money to one side.
The biggest factor in the slowdown was the US’s widening trade deficit, following a 28.8pc surge in imports – the sharpest rise in 26 years – against a 10.3pc rise in exports.
It was the size of the downward revisions to previous years’ growth which most concerned economists. In 2009 the economy was previously estimated to have declined by 2.4pc, but the figure was revised to a drop of 2.6pc. In 2008, the revision was from 0.4pc to no growth, while 2007’s 2.1pc growth rate was revised to 1.9pc.
“The prospects of a double-dip or some facsimile thereof were bolstered… by the contours of the second-quarter GDP report,” said David Rosenberg, chief economist at Gluskin Shef.
Nigel Gault, chief US economist at IHS Global Insight, was more wary, saying that a full reversal into a double-dip recession “remains a possibility” but was not his “base case”.
The disappointing growth numbers were compounded by the International Monetary Fund’s (IMF) annual report on the US economy. The IMF said there may be a need for the Obama administration to increase the amount of fiscal stimulus in order to boost the recovery, warning the “outlook remains uncertain”.
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UK house prices fall in July for only second time this year

The average price of a UK home fell 0.5pc to £169,347 in July, according to the latest figures from Nationwide Building Society released on Thursday. This month’s fall comes after prices stalled in June, and leaves them just 6.6pc higher than they were a year ago.

A combination of record low interest rates and far less unemployment than feared has helped prices rebound after slumping for 18 months in the wake of the credit crisis. However, Nationwide today suggested that the balance between buyers and sellers, which has also helped buoy prices, may be changing as the number of potential buyers dwindle.

Martin Gahbauer, Nationwide’s chief economist, said: “Many potential buyers still lack the confidence to purchase their first home or trade up when faced with uncertainty over future income and employment prospects.”
It will take several months, he added, to determine whether prices will resume falling or remain flat. Some economists are more pessimistic about the outlook, given the public spending cuts and still fragile state of UK banks.
Howard Archer, an economist at Global Insight, said “household confidence is currently weak and concerns over both personal financial situations and the economic outlook have been fueled by extra austerity measures.”
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House prices ‘now at 2006 levels’

28 July 2010 Last updated at 07:33 ET

House prices in England and Wales are now at similar levels to those seen in the summer of 2006, according to the Land Registry.
However, property values crept up by just 0.1% from May to June, taking the average cost of a house to £166,072.
Prices were 8.4% higher than a year ago, marking the eighth consecutive monthly rise in year-on-year prices.

Various commentators have suggested that house prices are likely to remain relatively static in 2010.
The Land Registry’s survey is widely regarded as the most authoritative, although it only covers England and Wales.
Regional breakdown
All regions of England and Wales have seen average property prices rise in the year to June, the Land Registry said.
The highest increase was in London - up 12.2% - with the smallest in the North East of England - up 0.7%.
However, the North East has seen typical house prices drop by 1.3% in the month from May to June. The highest month-on-month rise was in Wales, up 2.9%.

REGIONAL RISE
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US housing still in doldrums despite 24pc monthly rise

Patrick Newport, US economist at IHS Global Insight, called the numbers “abysmal”, noting that on a six-month moving average basis, new home sales have been flat since hitting recent lows in early 2009. “Normally, a 24pc increase would be reason to pop open the champagne. June’s numbers though… were abysmal,” he said.Anika Khan, economist at Wells Fargo, called the data “fake”, pointing out that other recent statistics have shown the US housing market “remains very weak”.The reason for the sharp month-on-month rise was the result of a greater-than-expected dip in May – when sales fell by 40pc – after the end of the first-time buyers’ home tax credit of $8,000.The rebound in June was slightly better than economists had expecting, given consensus forecasts of an annual rate of 310,000.The new data, from the US Commerce Department, also showed that the median price of new homes continued to fall, down 1.4pc from May and off 0.6pc from June 2009.However, some good news was contained within the housing report, which showed that at the current pace of sales, it would take 7.6 months to sell through the outstanding inventory, lower than the 9.6 months at the end of May, and closer to the market norm of six months.Five Filters featured article: “Peace Envoy” Blair Gets an Easy Ride in the Independent. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.

FTSE 100 rallies on upbeat economic data

Banks also provided much of the strength for the blue-chip index, ahead of
European stress test results on Friday, with Lloyds
Banking Group and
Barclays adding 2.6pc and 4.6pc respectively.

Capita
Group, which provides a criminal record service for the Home Office,
climbed 3.8pc after it reported improved margins and ’significant
opportunities’ in Government outsourcing.

Software firm Autonomy
was the top FTSE 100 faller, down 9pc after disappointing second-quarter
earnings.

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