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Economy in Brief

RICS Shows Weakening Trend for U.K. Housing
by Robert Brusca  January 18, 2018

Expectations for sales and prices in the housing market have been slipping in the RICS survey of U.K. home prices and sales. December has brought an unexpected jump in prices, but price expectations continue to ratchet lower. Sales expectations are sliding as well. New sales are off their October lows but still weak and slipping.

We are seeing Brexit effects in these numbers as Brexit uncertainly is adversely affecting perceptions of the market and its future. Many high-end banking sector jobs are being shifted into EU member states. As they leave, high-end owners and renters leave too, and that weakens both the housing and rental markets.

Comparing todays RICS survey values to the month just before the Brexit vote shows surprisingly little change in expectations for either price or sales (but these are only outlooks for three months ahead in any case). However, actually prices in the RICS survey are 12 points lower today than in May 2016. And consumer confidence overall is lower by 12 points than it was in May 2016. The consumer confidence standing in May 2016 was in its 81st percentile and that has slipped to a much more mid-range 54th percentile. Sales prices have slipped from a 71st percentile reading to a 63rd percentile of their range reading as of December. The Nationwide house prices survey shows that compared to May 2016, house prices are higher by 4.9%. But on that timeline, the rate of increase of U.K. house prices has been slowing and it has been doing so at a time that inflation has accelerated. House prices are struggling to maintain their value in real terms.

Overall the rate of increase of house prices is slowing. And consumer confidence has been slipping. With inflation still above the Bank of England target and a process of rate hiking having begun, the U.K. housing market appears to be in a difficult phase. However, despite all the challenges, U.K. growth has held up in part because it has been propped up by aggressive BOE easing in the wake of the Brexit vote and by substantial drop in the pound sterling's value. But the BOE has shifted again and has started to raise rates in response to inflation which has been over the top of its target. Other central banks too are disengaging from their tilt to ever more stimulus. If the BOE is going to continue on the path of rate hikes, mortgage rates are going to rise and the U.K. housing market will face yet another hurdle.

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