TSI
Low mortgage rates and strong demand benefitting US home builders
Low mortgage rates and strong demand should create a positive outlook for home builders in the United States but a serious labour shortage could hold them back. During the 2009 recession nearly a quarter of construction workers lost their jobs as the housing market collapsed and there is evidence that a number of labourers are not returning, leaving remaining construction workers overstretched, says an analysis report from Hermes Investment Management. It explains that this lack of qualified labour causes two fundamental problems for the industry. First, the completion rate struggles to keep pace with demand, which is on the rise in the US, and secondly margins shrink as workers command much higher pay. However, one of the most fundamental challenges facing US home builders is a reduction in first time buyer demand. The report suggests that mounting student debts, lagging wage inflation, scarce financing and lifestyle preferences weigh on the desire to buy a first home. ‘While demand for housing is generally rising in the US, the lack of younger buyers could permanently or semi-permanently remove a key driver of demand,’ said analyst Andrey Kuznetsov. He pointed out that 49% of 25 year olds lived with their parents in 2013, some 20% higher than in 1999, dramatically reducing the aggregate number of households even without adding those choosing or having to rent. ‘While overall demand still outstrips supply, this gradual cultural shift is removing some pipeline demand,’ added Kuznetsov. The report also explains that housing market trends specific to certain US states can also work against home builders. Demand for housing in certain parts of Texas, such as Houston, started deteriorating after the oil price dramatically declined in late 2014 and continued to fall throughout the last year. This initially affected more expensive properties, but is now also impacting lower priced homes. In California, where international buyers are usually a significant presence in the market, the stronger US dollar and weakness in buyers’ home economies are deterrents. Additionally, the volatility in equity markets could slow the demand from employees of the historically buoyant tech sector in the state. Home builders with above average exposure to these markets are increasingly at risk. However, it adds that short housing supply and low mortgage rates, the average 30 year loan charges 3.65% interest, suggest that fundamentals for the sector are strong. ‘However, in an environment where build times are lengthening, margins are under pressure, demand from first time buyers is declining and certain regional risks are increasing, we think there is more risk to the downside. Furthermore, the sector is trading at a relatively expensive level compared to others, supporting our negative view,’ said Kuznetsov. Continue reading
Demand for UK property fell by 5% in first quarter of 2016
Property demand across the UK as a whole fell by 5% in the first quarter of 2016 to 39% overall but demand is still up 9% compared to the same period in 2015. London’s outer boroughs and commuter belt continue to outperform the rest of the country where property demand is concerned, according to the hot stop index from estate agent eMoov. With demand at 72%, the London Borough of Bexley remains the hottest spot in the UK once again while Bristol at 68% climbs from third to second and Bedford at 66% was up four places to third. Cambridge and Watford, both at 62%, remain in the top 10 but have dropped down the rankings and outside the top five while Medway at 63% and Milton Keynes at 61% appear in the top 10 at fifth and ninth. Aylesbury at 63% also returns to the top 10 in sixth for the first time since the start of 2015. With demand currently at 65% Ipswich is placed in the top 10 for the first time to take fourth place and the report suggests that a direct commute into Liverpool Street of just over an hour is making the town more popular with London workers searching further afield for affordable property. Aberdeen with demand at 15% is one of the lowest cities on the list but it has seen a 50% increase over the last quarter so that property demand has returned to the same level as this time last year and the city is now off the bottom spot. At 27% Durham is the second biggest climber over the last three months and has also seen the biggest increase in demand over the last year across the whole UK at 90%. Second biggest climber year on year is North Lanarkshire in Scotland with a 67% growth in demand, followed by Barnet up 57%, Sandwell up 56%, Bolton up 45%, Gloucester up 42% and Manchester up 40%. Aberdeen’s shift up the table means it is now only the fifth coldest spot in the UK. Now at the bottom are the London boroughs of Westminster and Kensington and Chelsea, both at 12%. ‘It is interesting to see that despite the rush ahead of April’s stamp duty deadline, the UK market as a whole has cooled during the first half of the year. Although it’s undoubtedly a seasonal influence due to the festive period, it would seem that those looking to push through a second home or buy to let purchase, didn’t have the overall demand impact that many thought they would,’ said the firm’s chief executive officer Russell Quirk. Continue reading
UK house prices up over 10% year on year, latest index shows
Annual house price growth in the UK had edged above 10% in March with the market also seeing price growth on a monthly and quarterly basis, the latest index shows. Property prices increased 10.1% year on year, taking the average price of a home to £214,811, the data from the Halifax index shows. It also records month on month growth of 2.6% compared with February and quarterly growth of 2.9% in the first three months of 2016. But the quarterly rate of change was just below the 3% recorded in February. The annual rate of growth was higher than the 9.7% rise recorded in both January and February and has been within the 8% to 10% range for nearly the whole period since the start of 2015. The monthly increase in March more than offset February’s 1.5% fall but the index report points out that the quarter on quarter change is a more reliable indicator of the underlying trend as monthly house price changes can be volatile. Flat prices have risen more sharply than prices for other property types since 2008, according to recent separate Halifax research. The 57% increase in the average price of a flat is significantly higher than the 37% rise for all residential properties over the period. Detached homes recorded the smallest rise at 20%. Terraced and semi-detached houses saw price rises of 38% and 34% respectively. A considerable proportion of the national rise in flat values has been due to the rapid increase in flat prices in London with growth of 62%. However, flats represent a much higher share of the property market here than elsewhere. Half of sales in London are flats compared with the UK average of 17%. Worsening sentiment regarding the prospects for the UK economy and uncertainty ahead of the European referendum in June could result in some softening in the housing market over the next couple of months, according to Martin Ellis, Halifax housing economist. ‘Current market conditions, however, remain very tight with an acute supply/demand imbalance continuing despite an improvement in the number of properties coming on to the market for sale in recent months. This, together with continuing low interest rates and a healthy labour market, indicate that house price growth is set to remain robust,’ he said. Russell Quirk, chief executive of eMoov, pointed out that much of the increase in March could be due to buy to let landlords rushing to beat the introduction of an extra stamp duty tax on additional homes at the beginning of April. ‘Although it looks like good news for UK homeowners on the surface, this increase could be artificially inflated due to the stamp duty changes. When coupled with the fact that interest rates are still at a rock bottom and keeping the market buoyant, it’s hard to tell exactly how the market will go,’ he said. ‘It will be interesting to see what happens next month once the stamp duty dust has settled and… Continue reading
