American bounce helps Britain

David Smith: Home Economics

There has been significant news in housing markets on both sides of the Atlantic, most of it encouraging — but with strings attached.

Here, Bank of England figures continued the upward march in mortgage approvals from their lows last autumn. June’s figure of 47,584 represented a rise of 8% month on month, a 35% jump compared to June last year and 74% on the lowest point last November.

The number of approvals is gradually heading up to the point where, even in normal circumstances, house prices would be expected to stabilise. That said, they remain well below earlier peaks of more than 110,000 a month as recently as the first half of 2007. And the rise is yet to be mirrored in net lending, which edged up to £343m last month, from a record low of £331m in May.

What would speed up the process? Signs of price stability in the UK, for a start. The Land Registry said last week that prices edged up by 0.1% in June to an average of £153,046, the first positive number since January 2008. The Nationwide reports a 1.3% rise in July — the third increase in a row — which suggests that stability may be understating it. Prices are up by 4.4% since February.

When it comes to the broader health of the mortgage market, however, what happens in America is more important. According to the closely watched Case-Shiller index of property prices in 20 US cities, the market started to weaken in mid-2006, fell sharply in 2007 and dropped again after the collapse of Lehman Brothers in September 2008.

The most recent survey suggests that prices rose by 0.5% in May — or, after stripping out the normal seasonal uplift in spring, slipped by just 0.2%, far less than the 2% monthly falls seen earlier. It may be too late to call an end to the falls — the oversupply of housing is a more significant drag on the market in America than in Britain — but the freefall phase appears to be over.

Why does this matter to us? If prices in America stabilise, it makes those toxic assets banks are holding on their books easier to price and, in time, trade out of. It also opens up the possibility that securitisation — bundling up mortgages to sell to investors — will start to pick up. This provided a key source of UK mortgages in the past. Done responsibly, it will in the future.

– Turkey has topped the list of property hot spots, with growth of 15% in the past year, according to a study by Assetz, a housing-market investment specialist. The research looked at both rental profit and capital growth from residential property in 17 top buy-to-let destinations for Britons for the 12 months from July 2008. It found yields of between 1% and 6% in Germany, Italy, Cape Verde and South Africa. The worst returns were in Dubai and America: 58% and 49% losses respectively.

– Consecutive rental rises suggest that the UK housing market may have hit bottom, according to the latest index from It saw rents rise for the third time since March to an average of £825 per month, suggesting a recovery in lettings. The data also showed that rental stock has fallen for the second month running, but remains 68% higher than in July 2008. (David Smith, The Sunday Times)

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