Bricks and mortar may have become even more of a national obsession than usual as a raft of housing surveys published each week tell compelling stories about house prices, be they up, down or standing still.
At the moment, however, it appears to be a safe bet to deduce that house prices will continue to rise throughout the year, albeit at a steadier pace than last year, as the government struggles to solve the supply conundrum to double the number of homes being built each year to 240,000, the magic figure often cited by the industry.
The Royal Institution of Chartered Surveyors has forecast that average house prices across the country are set to rise by about 5 per cent a year for the next five years. Others have even pencilled in growth of about 30 per cent over the period.
At the same time, demand is continuing to improve as super-low mortgage rates and government subsidies, such as the Help to Buy scheme, have enticed more buyers into the market — moves that could push up prices further as demand significantly outpaces supply. This rising demand was highlighted only days ago when the Council of Mortgage Lenders reported a post-financial crash high in gross lending of £22 billion in July.
However, that could all change when interest rates rise from their record low of 0.5 per cent. Mark Carney, the governor of the Bank of England, signalled last month that this could take place as early as the end of next year. However, only a few weeks later, Threadneedle Street’s latest forecast indicated that this was more likely to be in the first months of the coming year.
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Most observers are certain that rates will have moved by 2017 but, with the Bank indicating time and again that any rise in interest rates should be gradual, it should be some time until this has a significant impact on the housing market.
The question, then, is what does this mean for the housebuilding sector, where profits of most of the leading companies have leapt on the back of Help to Buy, surging demand and rising house prices — in many cases leading to hefty payouts for shareholders.
While the future looks bright for some time if rate rises go through next year and are gradual, there is always the worry that housebuilders’ financial results can be volatile and too exposed to changes in mortgage rates and government subsidies.
Another area that could cause the sector problems is the skills shortage, particularly the dearth of brickies and plasterers. This has resulted in some commanding £1,000 a week in pay, according to Manpower, the recruiter.
In an example of the impact this can have on housebuilders, Bovis Homes said this week that its building costs had increased by about 7 per cent this year as a result of tradesmen pushing up their rates because the demand for homes continues to outpace the number of available workers.
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Scott Fulton, an analyst with Whitman Howard, said: “Labour costs are widely said to be an issue but this appears more southeast-based than across the UK as the builders have larger directly employed workforces outside the southeast.”
Nevertheless, the favourable conditions for the leading players may continue for the foreseeable future, with attractive yields in place. UBS analysts said last month that there was “still room to run” in the sector, with a “buy” recommendation for Barratt Developments, Bellway, Bovis Homes, Berkeley, Redrow and Taylor Wimpey. The York-based Persimmon, however, remained in “neutral” territory.
“While the debate on rising base rates will undoubtedly return, we expect a gradual rate cycle that can be absorbed in part by banks and increased wages,” according to the investment bank.
Anthony Codling, an analyst at Jefferies, said: “Many of the listed players are underpinned by strong dividend yields. You’ve got dividend players and people who are growing into a growing market. If it’s not a strong dividend yield, then it’s a strong growth story.”