Affordable areas near outstanding schools and luxury housing peaks
Making sense of the latest trends in property and economics from around the globe.
4 minutes to read
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A brighter outlook
In yesterday's Wealth Report Update I talked about the changing outlook for luxury housing markets as we approach peak rates. The period since the surge in inflation began in 2021 has been full of false dawns and conflicting data, but the signals are now consistently pointing in the right direction.
At the time of writing on Friday morning, investors were digesting the previous day's official figures from the US showing a strong rise in consumer spending amid very benign inflation data. The US jobs report, released on Friday afternoon in London, then showed an uptick in the unemployment rate, subdued jobs growth and wage rises back at pre-Covid rates.
That was enough for some of the world's largest bond investors to bet this cycle of hiking is ending:
The jobs data leaves “the bond market comfortable with the view that the Fed is on hold for now and maybe done for the cycle,” Michael Cudzil, a portfolio manager at PIMCO, told Bloomberg. “If they are done for the hiking cycle, it’s then about looking at the first cut that leads to steeper curves.”
Goldilocks
The UK picture looks more complex, but there are still reasons to be hopeful that we'll see a similar 'Goldilocks scenario' in which the jobs market cools enough to bring inflation down without causing a recession.
Rising prices and wages in the services sector have been a particular cause for concern, and yesterday's services PMI for August came with some positive signs. The overall rate of input price inflation was the joint-lowest since May 2021. Softer cost pressures and greater competition for new work contributed to the weakest rise in prices charged by service providers for two years. Subdued business conditions put a brake on staff hiring.
Michael Saunders, the former hawkish BoE rate-setter that served until 2022, thinks we've seen enough for the Bank to shift strategy when it meets this month:
“I think they’re pretty much done,” he told Bloomberg. “It looks to me about 50-50 as to whether they will hike again at the September meeting and if they do hike, it would be only 25 basis points.”
The Bank may have done enough to avoid a technical recession, but it's going to be a lean few years. The UK economy is likely to expand 0.4% this calendar year, before growth slows to 0.3% in 2024, then nudges up to 0.7% in 2025, according to this morning's updated forecasts from the British Chambers of Commerce.
Affordability challenges
"Customers continue to face cost of living and mortgage affordability challenges, and new developments are increasingly constrained by an ineffective planning system. Today's results reflect the hard work and dedication of our teams and the decisive actions we have taken as a business to respond to market conditions."
That was Barratt Developments chief executive David Thomas this morning as the company reported its full year results. The group completed 17,206 homes during the year through June, down 3.9% on the same period a year earlier. The company is targeting completions of between 13,250 and 14,250 in FY24.
The net private reservation rate per active outlet per average week stood at 0.42 between July 1st and August 27th compared to an average of 0.60 for the full year. That included a contribution of 0.02 (FY23: 0.05) from the private rental sector and additional sales to registered providers of social housing.
Schools
Chris Druce and the team looked at more than 500 primary and secondary schools in England that have been rated outstanding by Ofsted within the last six calendar years (routine inspections were suspended in 2020). He then compared the average sale price for a house within 2km of each school (1km in London) against the local authority average, coming up with a list of the 40 areas outside of London and 20 in the capital offering the greatest relative affordability.
Yorkshire and The Humber topped the list for both primary and secondary schools. Houses within 2km of outstanding schools in Bradford and Leeds offered the largest discounts relative to the local authority averages of -46% and -48%, respectively. In London, it is generally the outer boroughs that offer the best relative affordability with access to top-rated schools, although Westminster, which has more homes priced above £1m than anywhere else in the UK, is the exception. You can see the full results here.
In other news...
Rich investors swoop in as the UK squeezes small landlords (Bloomberg), and finally, extreme renting: London’s bidding war escalates as rising rates hit buy-to-let (FT).