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Economy in Brief

Survey Shows Net Reduction in House Prices; Construction Orders Already Down
by Carol Stone September 13, 2007

The UK housing market, too, seems to be faltering. The monthly survey of the Royal Institute of Chartered Surveyors, RICS, shows a net decline in house prices in its August reading of -1.8%, the first decline since October 2005. The survey questions asks about developments over the past three months, so this is no quirk. The raw data show a drop from 20% in July to 10% in August in the portion of RICS members reporting higher home prices and an increase from 16% to 19% in the portion reporting lower prices. [Net balance figures are seasonally adjusted by RICS.]

In August, the average number of home sales per surveyor was 23.3 over three months. The average number of homes in their inventory at the end of August was 62.2, making a turnover ratio of 37.6%. While this is almost the same as in August 2006, it is down from a recent high of 46.6% in March.

Further, buyer enquiries were reduced at a net 37% of firms, a deterioration from July's 27% and June's 19%. The raw response data showed a lower volume of enquiries at 61% of firms, the highest figure for August since 2004, which was 62%, the highest August value in the nine-year history of the survey.

A separate report from the UK Government's Department of Trade and Industry shows that orders for construction have already weakened. They fell 7.5% in July, following on 16.0% in June (seasonally adjusted in 2000 prices). These orders move widely from month to month, and looking at a 2-month % change gives an average of -11.9% in June and July, the weakest period since May/June 2003, -12.2%. Orders for new housing rose in July, by 15.7%, but they had dropped 32.7% in June. The two months had an average decline of 11.8%, the weakest performance since September/October 2001. Nonresidential construction orders, called here "other work", fell 15.3% in July and 8.4% in June.

Construction output is measured in the UK in quarterly data, reported for Q2 just a week ago. It looked pretty good. The total, "all work", rose 0.8% from Q1 and 3.5% from a year ago. This was the strongest outcome since Q2 2004. However, the housing portion has already flattened out. New private housing output was virtually unchanged in Q2 after declining 2.1% in Q1; the year-on-year change showed modest growth of 1.1%. Obviously the customer traffic reported in the RICS survey and the downward path of orders for new housing don't suggest that an improvement is imminent.

UK: RICS Survey, SA Aug 2007* July 2007* June 2007* Year Ago* 2006 2005 2004
House Prices: % Balance -1.8 +10.8 +10.7 +36.2 +28.3 -25.9 +6.8
Sales/Stock Ratio, % 37.5 37.1 39.1 37.7 37.7 29.7 45.3
New Buyer Enquiries
 % Balance
-37 -27 -19 +26 +13 +6 -12
SA*, % Change
Construction Orders -- -7.5 -16.0 -3.7 +6.0 +6.0 +8.3
New Housing -- +15.7 -32.7 -0.3 +1.7 +4.7 +15.2
Other Work -- -15.3 -8.4 -5.2 +8.0 +6.6 +5.4
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