House prices are rising again
Making sense of the latest trends in property and economics from around the globe
3 minutes to read
UK house prices climbed 0.8% in July following three relatively flat months, Halifax reported this morning. That brings the annual growth rate to 2.4%, the highest since January.
“Against the backdrop of lower mortgage rates and potential further Base Rate reductions, we anticipate house prices to continue a modest upward trend throughout the remainder of this year,” says Amanda Bryden, the lender's head of mortgages. We agree - our May forecast of a 3% rise in house prices this year looks about right.
“A number of buyers switched off early for summer due to the election, but that has created pent-up demand that will propel activity when the autumn market begins next month," says Knight Frank's Tom Bill.
Roaring ahead
It's not just home seekers that were back in the market during July. Construction firms reported the strongest increases in activity and new orders since 2022 as paused projects were restarted amid reports of surging consumer confidence, according to the S&P Global UK Construction PMI, published yesterday.
"The election-related slowdown in growth seen in June proved to be temporary, with the pace of expansion roaring ahead in July," says S&P Global Market Intelligence economics director Andrew Harker.
Once sentiment turns, economic momentum tends to build quite quickly, illustrating why the Bank of England will err on the side of caution during the coming months. Firms increased staffing levels for the third month running. Higher demand for materials is already putting pressure on supply chains, and inflationary pressures are picking up. Close to 53% of respondents predicted a rise in activity over the next 12 months.
No time for delays
Office occupiers have been hesitant to commit to space amid the uncertain economic outlook. Many have opted for short-term solutions such as re-gearing leases or contracting service spaces.
However, vacancy rates for top-quality office spaces are at critically low levels in some major cities. Development remains constrained and supply continues to narrow. The improving outlook in the wake of last week's rate cut from the BoE will put more pressure on occupiers to adopt longer-term strategies.
There are signs this is already happening, according to Knight Frank's UK Cities Mid-Year Review. Total office space take-up for the first six months of the year climbed 10% compared to the same period in 2023. Deal numbers were 14% higher than the five-year average.
"Caution will underscore every business decision in the latter half of this year. However, the rapidly evolving business and real estate landscape increasingly means that delay is no longer an option," says Knight Frank's head of UK cities research Darren Mansfield.
Emergency cuts
We sent out Monday's note amid a deepening stock market rout driven at least in part by fears that the US soft landing was morphing rapidly into a hard landing. Did markets overreact? Probably. Here is Bloomberg on how the so-called 'smart money' reacted:
Hedge Funds snapped up individual US stocks at the fastest pace since March, reversing a months-long selling spree, data compiled by Goldman Sachs Group Inc.’s prime brokerage show. Separate JPMorgan Chase & Co. analysis showed institutional investors scooped up $14 billion of shares on net during the downdraft.
Talk of an emergency rate cut always looked a stretch given the fact that Federal Reserve chair Jerome Powell has repeatedly stressed that stock markets are not a reliable indicator of economic health. Nevertheless, bets that the Fed will opt for a 50bps cut next month remain intact.
In other news...
Labour faces tough task in winning community support for building boom (FT).