Last Friday (January 9th) Investment Bankers Jefferies surprised both the city and the house building industry by down-rating most of the UK developer stocks. The Big Three were hardest hit by the news and, while their share prices have recovered a little since, some of the justification Jefferies offered for their bearish outlook had a resonance with me and one or two other industry observers.
In addition to a slowing UK economy generally, their main concerns were a drop in UK mortgage approvals, falling transaction volumes and weaker house price data – the sort of thing I have been flagging for around six months now. However, I don’t take such a bleak mid-term view.
While the CML’s December press release showed a fall in house purchase approvals (for the fourth consecutive month), transactions are still around the level they were a year ago and they do forecast growth in mortgage lending in both 2015 and 2016. They forecast lower volumes this year but I do not believe the fall will be as substantial as they predict. We have the Stamp Duty Land Tax reforms and Help To Buy of course – which is currently being promoted on TV.
I predict UK volumes will be broadly the same in 2015 as they were last year, around 1.23 million. And I still believe we will see prices hold relatively steady. Despite the downbeat assessment by Jefferies, largely based on the most recent forecasts from the CML, I am staying with my prediction of 3.5% house price growth – according to the Halifax price index – for the year.
If I am allowed one caveat it has to be the outcome of the election in May. Right now it seems like the market is holding its breath, depending on the colour of the next Government, we could see a rush back to market after the votes are counted!