Where next for the housing market?

According to CBI Director-General John Cridland,

“Housing makes a significant direct contribution to economic output and job creation, and also has a big impact on business and consumer confidence and spending.”

The latest Halifax Housing Market Consumer Confidence Tracker, undertaken in June, shows that, on balance, the British public (and owner-occupiers among them) consider the next 12 months to be a good time to buy. In addition, the House Price Outlook (HPO) – the balance of those thinking the average UK house price will be higher in twelve months time less those who think it will be – is currently +15. This compares to +19 in March. This is significant because the March measure was the most positive HPO measure in the four surveys Ipsos has conducted for the Halifax since April 2011. And June’s measure comes after the confirmation of the double-dip recession and continued economic worries. What we are seeing is a pattern whereby HPO is following the rises and dips (relatively speaking given the public’s consistent pessimism) in economic optimism as measured by Ipsos’s monthly Economic Optimism Index (EOI). It can be seen that there is gap between the negativity of EOI and the positivity of HPO (recognising that HPO has been in negative territory once, last October): This shows that expectations on prices are tracking economic outlook but from a higher base; the public are more bullish about house prices over the next twelve months than they are about economic prospects (this applies equally to owner-occupiers). The positive balance of HPO also contrasts with other consumer confidence indices in June relating to people’s personal financial situation (-9 in June), and the climate for major purchases (-28). The movement in HPO shown above appears to be happening independently of market trends. As shown below, the Halifax’s House Price Index has shown small month-on-month fluctuations in average UK prices. Thus, quite apart from a flat market (in terms of prices), a detailed look at the constituent parts of our HPO show that a quarter of the British public, a fifth of owner-occupiers, expect a change of at least 5% up or down. There are at least a couple of qualifications to this analysis of consumer confidence. Firstly, almost as many people currently think prices will stay the same as go up; that 34% think there will be an increase is hardly bullishness (although it is worth noting here that the percentage expecting a fall has remained pretty consistent at around 20% since April last year). Second, there is, of course, a difference between price expectation and confidence; for some consumers in this market, confidence to consume could increase if prices fall. Our survey also asks respondents whether the next 12 months will be a good time to buy and to sell (in advance of the HPO question). The five measurements we have dating back to April last year have consistently recorded 50-55% considering it a good time “for people in general” to buy property, 30-35% thinking it a bad time. Sentiment on selling is more salutary. At best, 61% have thought it to be a bad time to sell (October last year). Now, the figure is a more typical 70%, 72% among owner-occupiers, well in excess of the 15% who think it a good time to sell. This sentiment hardens if the expectation is that prices will fall over the next 12 months but what is most striking is that, independent of price expectations, the view is firmly against selling. This might explain two things. Firstly, positive price outlooks holding sway over negative ones could have contributed to the relatively soft landing the British housing market has experienced during economic turbulence (relative to, say, the United States and for several reasons). Second, negativity on selling chimes with other evidence of a stay-put-and-see-it-out market. We will continue to track these measures and soon we will be able to compare consumer expectations with market reality. This all matters because housing market consumers make the daily decisions – buy, sell, put prices up/down – which determine this important part of our economy.