Take a punt on the market outlook for bricks and mortar
A YEAR ago, many housing market observers were predicting doom. Prices would keep falling well into 2010, they said. The market could take years to pick up. But how wrong they were. Just as we have seen in the stock market, things have turned round much more quickly than almost anybody thought.
Mortgage lender Halifax reported last week that house prices rose by 0.8 per cent in August, following a rise of 1.2 per cent the month before. Even more encouragingly for the market, the quarterly average rose 1.7 per cent in the three months to August, the fastest gain in this underlying measure since July 2007, which was pretty much the peak of the housing boom. And according to the Halifax August survey, the average price of a UK house stood at £160,973, which is back above last December’s figure of £160,861.
The Nationwide house price survey has been even more upbeat, reporting that house prices rose by 1.6 per cent month-on-month in August, the fourth increase in a row. Consequently, the year-on-year drop in house prices on the Nationwide measure slowed to just 2.7 per cent in August.
Adding to the positivity, mortgage data shows that approvals for home loans are picking up, and even house asking prices are starting to rise.
However, there is still some scepticism that the recovery in the UK housing market will take a straight path upwards.
Howard Archer at IHS Global Insight, says that while it is now looking very likely that April marked the trough in house prices on the Halifax measure, the market will be prone to relapses in the coming months. Hopes of a “sharp, sustainable upward trend” are overly optimistic.
Indeed, although Bank of England data showed that mortgage approvals for home purchases rose to a 15-month high of 50,123 in July, those figures were still well below the 70,000-80,000 that are generally seen as consistent with stable house prices.
Also, while house prices might be on the up, they are still well off the peak in the third quarter of 2007 when the average UK home cost £199,766 and the average London house fetched £322,769.
AFFORDABILITY PRESSURES
What’s more, the latest Halifax data show that the ratio of house prices to earnings rose back up to 4.39 per cent in July from 4.25 per cent in April, which means that affordability pressures are starting to move back up at a time when still weak economic activity, sharply rising unemployment and low wage growth is negative for the housing market.
With expectations running ahead of the facts, this could be a good time to get involved in spread betting on the housing market. IG Index currently offers spread betting on both the UK and London’s average house prices in the two nearest quarters – currently September and December. The prices are given in points per £1,000 and are based on the Halifax house price survey as well as economic data and what business the company has seen.
At the moment, IG’s December 2009 contract is trading at 163.2-165.7 while the September contract – which expires at the end of this month – is at 161.9-163.9. The mid-price on this contract has risen nearly 7 per cent since the end of June, says David Jones, chief market strategist at IG Index. “Coming into the summer everybody was really gloomy about house prices, but now sentiment has really turned on its head,” he notes.
IG’s December London house price contract is currently trading at a mid price of around 249 compared to 232 at the end of July, indicating that London house prices should reach about £249,000 by the end of this year – a far cry from the continued falls that mortgage lenders and spread betters had anticipated earlier this year.
But unless persistent concerns about bank lending are addressed, it is still going to be difficult for buyers to get mortgages. With further relapses in the housing market predicted, a short position might be in order for the adventurous spread better. You could also wait until early October when IG creates its March contract to take a view on how you think house prices will progress next spring.
For UK house prices, the spreads are reasonably tight: three basis points for the near quarter and 3.6 basis points on the far quarter. But for the London house price contracts the spreads are much wider – five and six basis points for UKand London respectively.
Some might be tempted to see spread betting on house prices as a neat way to offset the falling value of their home, but while that might be possible to a certain extent, remember that IG limits you to betting £250 per point on the UK house price market and just £150 a point on the London one, limiting how much profit you can make.
They might not offer a perfect hedge against the value of your home, but spread betting on the prospects for the housing market could help you out. And for those who aren’t able to take part in the great British sport of speculating on our homes at the moment, it’s a way to make some money from bricks and mortar in the meantime.