House market upturn gains traction on price rise

House prices rose for the third month in a row during July and are now higher than they were at the start of the year, the Nationwide Building Society said today.

The average value of a UK home rose by 1.3 per cent during the month to £158,871.

Since the start of the year, prices are also up 1.3 per cent and could be higher still by the end of the year.

“Only a few months ago such an outcome would have appeared unthinkable,” said Martin Gahbauer, Nationwide’s chief economist.

Average prices are now 6.2 per cent lower than a year ago, which is a significant improvement on the 9.3 per cent year-on-year decline registered just one month before.

The data follows Bank of England figures published yesterday that showed the number of mortgages approved for home use purchase rose for the fifth month in a row during June to the highest level for more than a year.

According to Nationwide’s figures, February represented the lowest point of the market with prices registering a 17.6 per cent annual decline.

The building society said house prices had been “remarkably resilient” so far this year despite recession and rising unemployment. This could be because the sharp fall in transactions last year produced a pool of buyers who were ready to buy but did not want to do so at the height of the banking crisis, Mr Gahbauer added.

“When it became clear that Government interventions around the globe had stabilised the banking system and prevented a worst-case economic outcome, some of this pent-up demand re-entered the market, with the added assistance of very low interest rates,” he said.

But the building society also warned that the current run for the property market — with prices up in four of the last five months — may not be sustained.

This is because at current rates, prices would become out of kilter with average earnings, while rising unemployment would force more households to sell up.

“It is unlikely, therefore, that price increases can be sustained for long at the very strong rate observed over the last few months.” he said.

Nationwide also warned of a long-term shortage in housing supply because of the deep recession in the building industry.

It expects only about 100,000 homes to be built in 2009 — the lowest level on record — as building work slides well below the annual increase in the number of UK households.

“As it is likely to take time for the economy and housing construction to recover to pre-crisis levels, the potential exists for a considerable housing shortfall to develop over the next few years,” Mr Gahbauer said. (Times Online) http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6732904.ece

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Fed’s Yellen Sees First ‘Solid’ Signs of End to Slump

By Vivien Lou Chen and Steve Matthews

July 28 (Bloomberg) — Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. economy is showing the “first solid signs” of emerging from the recession and should resume growth later this year.

“That recovery is likely to be painfully slow” as consumers spend less and save more, Yellen also said in a speech today in Coeur d’Alene, Idaho. “A gradual recovery means that things won’t feel very good for some time to come.”

Yellen’s remarks echo the view of Fed Chairman Ben S. Bernanke, who told Congress last week the economy is showing “tentative signs of stabilization.” Those indications include a rising stock market, slowing declines in housing prices and a waning pace of job losses, the regional bank president said.

“The interaction between the economy and the credit crunch, often described as an adverse feedback loop, led to what could become the most severe recession since the Great Depression,” the 62-year-old bank chief, who votes on monetary policy this year, said in the speech to a convention of the Oregon Bankers Association and Idaho Bankers Association.

“We glimpse the first solid signs since the recession started more than a year and a half ago that economic growth may be poised to resume,” Yellen said. “Indeed, I expect that to happen sometime this year,” she said, while adding that risks to the outlook remain, with the commercial property slump the biggest threat.

Fed Forecasts

Fed officials anticipate the U.S. economy will contract less this year than they had projected in April, even as unemployment climbs to as high as 10 percent, according to their latest forecasts released on July 15.

Consumer prices are now forecast to rise by 1 percent to 1.4 percent this year, compared with April projections of 0.6 percent to 0.9 percent. Excluding food and energy, prices are expected to increase 1.3 percent to 1.6 percent, up from a range of 1 percent to 1.5 percent three months earlier. The figures reflect the central tendency of projections, which exclude the three highest and three lowest forecasts.

Core inflation will probably remain below 2 percent “for several years,” Yellen said.

“The Fed is keenly aware” of the need to tighten policy in time to avert higher inflation, Yellen said. “When the economy does come back, I can assure you that we will act decisively and appropriately to tighten the stance of policy and maintain price stability.”

‘Not the Time’

In response to audience questions, Yellen said the Fed would need to stay “ahead of the curve” and tighten policy before the unemployment rate returns to a more normal level of about 5 percent. “That said, this is not the time” to raise rates, she said.

Most Fed officials last month considered the economy “still quite weak and vulnerable to further adverse shocks,” even as they rejected an expansion in asset purchases, according to minutes of their June 23-24 meeting in Washington.

Yellen today said, “there remains some chance that economic conditions could turn out worse than what I’ve sketched.”

“High on my worry list is the possibility of another shock to the still-fragile financial system,” particularly in commercial real estate, she said. “Our biggest concern now is with maturing loans on depreciated commercial properties.”

Job Losses

Employers reduced payrolls by 467,000 last month and the unemployment rate rose to the highest in almost 26 years. The world’s largest economy has lost about 6.5 million jobs since December 2007.

Payrolls have shrunk at a “dreadful pace” and unemployment is poised to go higher, Yellen said.

The regional Fed president said she expects demand for U.S. debt to stay “strong” even as the government sells a record $115 billion of Treasuries this week.

“I believe the market for our debt will remain strong because savings throughout the global economy is very strong and competition from private issuance is very weak,” Yellen told reporters after the speech.

The government sold a record $42 billion of two-year notes today, the biggest offering of the notes since the Treasury began monthly auctions of them in the mid-1970s. Indirect bidders, a class of investors that includes foreign central banks, bought 33 percent of the notes.

The only thing that would impair demand is an erosion in confidence in U.S. policy, Yellen said, adding she sees “no reason” that will happen.

Yellen praised Bernanke’s performance as Fed chairman, adding that he has tried to strengthen the role of the policymaking committee. Bernanke has made it clear that sound policy relies on the actions of the entire central bank rather than on just a powerful chairman, she said.

“My own view is he has done an excellent job of managing through the most difficult time in U.S. economic history since the Great Depression,” Yellen said of Bernanke. Still, “we would not be lost” if he were not reappointed at the conclusion of his term in January, she said. (Vivien Lou Chen & Steve Matthews, Bloomberg) http://www.bloomberg.com/apps/news?pid=20601068&sid=aGSFM7Y_FJNc

Darling steps up pressure on banks over high cost of business borrowing

Suzy Jagger Politics and Business Correspondent

Alistair Darling has effectively threatened Britain’s biggest banks with a competition inquiry should they fail to increase cheap lending to mortgage borrowers and small businesses.

The Chancellor met the chief executives of seven of the country’s biggest banks in the Treasury yesterday along with Lord Mandelson, the Business Secretary, Baroness Vadera, Minister for Competitiveness, Small Business and Enterprise, Lord Myners, the City Minister, and senior officials from the Bank of England.

Mr Darling presented the bankers with official data showing that they had failed to pass on cheap lending facilities to mortgage borrowers and to small and medium-size businesses. He is concerned that the banks are exploiting historically low base rates in order to beef up their profit margins.

Mr Darling told the financiers that Lord Myners would summon each of the banks to the Treasury over the coming weeks to comb through their lending books to ascertain how much they are charging for borrowing facilities. He warned them that the Treasury would be “looking over their shoulder” to monitor whether they were failing to offer loans at fair rates to businesses and mortgage borrowers.

The Chancellor hinted that the Treasury would take steps to examine competitiveness across the banking industry should their lending practices remain unchanged. He is worried that the banks are taking advantage of cheap lending costs for themselves and not passing them on to businesses desperate for capital.

The veiled threat of a competition inquiry hit a raw nerve across the banking industry. George Osborne, the Shadow Chancellor, has already pledged to open an inquiry into banking competition in the event that the Conservatives are voted into office next year. He is concerned about the effect mega-mergers such as HBOS becoming part of Lloyds Banking Group will have had on borrowers and savers.

In the hour-long meeting Mr Darling presented data drawn from the Bank of England and from the banks’ records which showed that in 2007 about one medium-sized company in 50 was paying more than 9 per cent above the base rate for borrowing facilities. But by this year one in three had been forced to pay more than 9 per cent above the base rate.

As Lord Mandelson went into the meeting he said: “The Chancellor and I are not satisfied that lending is as it should be, even now after this time that we have been operating our policies. We are also concerned about the cost of lending.”

One banking source said that the tone of the meeting was “amicable and constructive”.

While Lloyds Banking Group and RBS, which are part state-owned, have signed up to increase their lending overall, there are no obligations governing the rates they can charge.

The Treasury is trying to tread a fine line. It wants to make sure that businesses get the credit facilities they need but the Government wants the banks to continue to run themselves as commercial entities so that they can be sold back to the private sector at a profit for the taxpayer.

Lord Oakeshott of Seagrove Bay, a Liberal Democrat Treasury spokesman, said: “Britain is still deep in a recession because the banks are not lending to business. Alistair Darling must stop playing Pontius Pilate and abdicating responsibility for the banks when he has the power as a controlling shareholder to compel RBS and Lloyds. If he fails to do so, thousands of sound businesses will go down, and hundreds of thousands of jobs will be needlessly lost.”

Lord Mandelson is to announce a £150 million shot in the arm for high-tech manufacturers today, aimed at safeguarding top-level science jobs and funding expansion. Aerospace, biotech, plastics and silicon specialist companies and low-carbon technology will benefit. The Business Secretary believes that these manufacturing businesses will drive Britain out of recession.

Scene set for UK rented housing boost

The UK is set to experience a boom in American-style mass-produced rental homes as part of proposals by a consortium that meet a government call for greater institutional investment in the residential market.

Aviva insurance group,is to launch an investment fund with as much as £1bn to buy and rent out swaths of new-build residential property in partnership with CB Richard Ellis property consultancy and a big US residential manager.

The venture will order purpose-built residential blocks of 100 units or more in south-east England to rent out, mainly near big transport hubs and on significant regeneration sites that have stalled because of the economic downturn.

The partners have based their strategy on a US model of large-scale, multi-family rented housing. They say that it will be the first of its kind for the UK, providing thousands of homes for the private rental market, which is dominated by amateur landlords and buy-to-let investors. Rental property is a much bigger business in the US and across northern Europe.

Andrew Appleyard, head of UK specialist property funds for Aviva Investors, said: “We are looking to do something here that has not been done before. We feel that the economics are right given where the market is heading. There is appetite for renting that hasn’t been there before.”

Aviva is concluding an agreement to bring one of the largest US residential managers to the UK to import its professional skills in running a standardised high-quality rental operation.

Large institutional investors have been deterred from making any significant focus on the residential rental market in the UK because of management costs and difficulties in creating a large portfolio, but they have recently been encouraged by the government.

Aviva is working closely on the plans with the Homes and Communities Agency, the government’s national housing body, which in May called on institutions to help galvanise house building and provide quality rental property. The HCA has received more than 60 expressions of interest, and hopes there will be many more similar schemes.

The vehicle, to be launched next month, is expected to be open to investors outside Aviva’s clients, such as other pension funds, and private wealth vehicles. It could eventually be turned into a listed vehicle, such as a real estate investment trust. (FT.com) http://www.ft.com/cms/s/0/f41bbf22-79f5-11de-b86f-00144feabdc0.html

No summer slowdown for property market this year

London’s property market is apparently being flooded with buyers who fear they may have missed the best buying opportunities, following wide reports of rising house prices and a renewed confidence in the market, according to property consultants Cluttons.

The group has reportedly seen a 75% increase in new buyer registrations since July 2008 and a 35% increase since May this year.
 
Rather than experiencing the usual summer slowdown in the sales market, as the school year ends and buyers and sellers take annual holidays abroad, the Central London market has instead shifted up a gear.
 
James Hyman, Partner for Residential Sales at Cluttons, said: “We are seeing the complete opposite of a summer slowdown this year, as buyers start to panic that they have missed the chance to buy at the lowest prices. There is a huge pent up demand, with buyers having waited for the last 18 months for the market to bottom – only the lack of stock is currently preventing activity in the Central London market from returning to 2007 levels.
 
“As the housing market and economic data becomes more consistent with a recovery, Londoners are suddenly buying into the ‘green shoots’ theory and this, combined with the return of bonuses in some businesses, has given buyers a renewed confidence and a ‘feel good factor’ which is influencing their decision to buy.”
 
Cluttons also said that those who wish to sell are reluctant to relinquish their property until they have found a property to buy, for fear of missing out on price rises and finding themselves priced out of the market. Last year’s trend, of selling and moving into rented accommodation before buying again at a later date, is said to have all but vanished.

U.S. Economy: New-Home Sales Climb 11%, Most in Eight Years

By Courtney Schlisserman and Bob Willis

July 27 (Bloomberg) — Purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilize.

Sales increased to a 384,000 annual pace, higher than every forecast in a Bloomberg News survey and the most since November, figures from the Commerce Department showed today in Washington. The number of houses on the market dropped to the lowest level in more than a decade.

Deutsche Bank Securities Inc. and Goldman Sachs Group Inc. economists said today’s figures signal an end to the slide in home construction and sales. While that means the drag on economic growth will turn to a stimulus in the second half of the year, property values are likely to continue falling and rising unemployment will temper the recovery, analysts said.

“We’re barely past the housing bottom, this thing is still fragile,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. “It’s not premature to talk about home prices bottoming — it’s somewhere in the next three to six months. There is light at the end of the tunnel.”

Builders’ stocks jumped, with the Standard and Poor’s Supercomposite Homebuilding Index gaining 2.3 percent. The broader S&P 500 Stock Index was up 0.1 percent at 980.35 at 10:10 a.m. in New York. Treasuries, which fell earlier in the day, remained lower, with benchmark 10-year note yields rising to 3.75 percent from 3.66 percent at last week’s close.

Construction Recovers

The Commerce Department earlier this month reported that builders began work on 582,000 residential properties at an annual rate in June, the most since November. Home construction has subtracted from U.S. gross domestic product every quarter since the start of 2006.

The jump in sales signals the U.S. economy is on the way to recovery, said Rebecca Blank, under secretary for economic affairs at the Commerce Department.

“Across the board this is good news,” Blank, formerly a fellow at the Brookings Institution in Washington, said in an interview. “It’s what you would expect to see at the beginning of a recovery.”

Standard Pacific Corp., the U.S. homebuilder that gets most of its revenue from California, is among companies seeing stabilization. It’s net loss, the 11th consecutive drop, narrowed to $23.1 million in the second quarter from $249 million a year earlier, the Irvine, California-based company said last week. Revenue fell 29 percent.

Smaller Losses

“While we still obviously have not achieved the level of profitability that we ultimately need, we are a lot closer than we were a couple of quarters ago and believe that we are in pretty good shape in the short run,” Chief Executive Officer Ken Campbell said in a July 22 statement.

While prices continue to fall, the pace of the decline is easing. The S&P/Case Shiller index of 20 major metropolitan areas tomorrow may show property values fell 17.9 percent in May from a year earlier, according to the median forecast in a Bloomberg survey. The measure was down 18.1 percent in the 12 months ended April.

“In terms of residential investment and home sales and housing starts, I think it has” bottomed, said Jan Hatzius, chief U.S. economist at Goldman Sachs in New York, referring to the housing slump. “We still have a period of declines ahead of us” in prices, he also said.

The decline in prices and a drop in mortgage rates have started to lure buyers even amid the surge in unemployment, which reached a quarter-century high of 9.5 percent in June.

Economists’ Forecasts

Economists had forecast new home sales would rise to a 352,000, according to the median of 62 projections in a Bloomberg News survey. Estimates ranged from 335,000 to 377,000. Commerce revised May’s reading up to a 346,000 rate from a previously reported 342,000.

The median price of a new home decreased 12 percent to $206,200 from $234,300 in June 2008. Last month’s value compares with $219,000 in May.

Builders had 281,000 houses on the market last month, down 4.1 percent from May and the fewest since February 1998. The number of unsold properties fell a record 36 percent from June 2008. It would take 8.8 months to sell all homes at the current sales pace, the lowest level since October 2007.

Foreclosure filings reached a record in the first half of the year, providing competition for homebuilders and pushing down the value of all houses. Also, rising unemployment, which economists forecast will top 10 percent by early 2010, threatens to restrain any recovery in housing.

Fed Efforts

Federal Reserve policy makers have committed to a $1.25 trillion program to purchase securities backed by home loans in an effort to put a floor under the housing market and lower borrowing costs. Those purchases, as well as direct government purchases of Treasuries, drove the rate on 30-year mortgages to a record-low 4.78 percent in April, according to figures from Freddie Mac. Rates have since hovered around 5 percent.

Fed Chairman Bernanke said July 21 that the economy is showing “tentative signs of stabilization” and the “decline in housing activity appears to have moderated.”

Another incentive is the $8,000 tax credit for first-time buyers that is part of the Obama administration’s economic stimulus plan. Purchases have to be completed before Dec. 1.(Courtney Schlisserman, Bloomberg) http://www.bloomberg.com/apps/news?pid=20601087&sid=aOyCZPnuxJUw

Natural selection, survival of the fittest

It’s like this, when the herd is hunted, it is the slowest and weakest ones at the back that are killed first.  This natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the regular killing of the weakest members.

In much the same way, the human brain can only operate as fast as the slowest brain cells.  Excessive intake of alcohol, as we know, kills brain cells, but naturally, it attacks the slowest and weakest brain cells first.  In this way, regular consumption of beer eliminates the weaker brain cells, making the brain a faster and more efficient machine.

That’s why you always feel smarter after a few beers.