- Housing start-ups continue to suffer even with the new mandates by the government.
- Northern UK house prices are feeling a greater shock. Profit warnings had a significant run-up from the beginning of the year.
- Interest rates are moving in the wrong direction and creeping closer to 6%.
- Valuations more than double the FTSE All-share. More importantly the real estate market is factoring 14% growth for the index when analysts are citing about 6%.
Summary:
Yikes! The trend is not looking good. All the key indicators are scary. Profit growth is deteriorating while prices continue to head up. First-time buyers now only account for 35% of gross mortgages this down over 10% from the early 90s.
The picture clearly looks like a game of Jenga. For those of you who don’t know, Jenga is a game in which players remove blocks from a tower and put them on top. Top heavy will become the new acronym in the market. Support is coming from equity infusions in the buy-to-let market, foreigners, government developments (i.e. Olympics, etc) and changes in regulations. Most of these main drivers will dissipate with higher interest rates. Location will continue to be the key.
However, it is our belief that local real estate companies will suffer. The ones that turn abroad will be much better sheltered. Don’t expect a topple but at least a subtle declining trend in UK property prices. A soft landing would benefit us the most and it seems we are heading in this direction.