Political fallout and the property market

Guest post by: Distressed Assets

The political fall out from the recent resignations of Hazel Blears, James Purnell and now John Hutton continues with Gordon Brown starting to look more and more beleaguered by the day. It will be fascinating to see how events unfold in the coming days.
All of this (whatever your thoughts are on Gordon Brown and the Labour party) is bad news for Britain, at least in the shorter term. Sterling has already dipped again today against the Dollar and the Euro after a recent rally. Steady leadership in any crisis is of huge importance and unless the current problems are resolved soon any green shoots of recovery will be trampled on. For the investor looking for value, however, this may not be a bad thing….
Is market confidence returning? The UK property market seems finally to be showing some signs of life. Recent data released by the Royal Institution of Chartered Surveyors (RICS), Rightmove and Halifax have all indicated market improvement: a recent RICS report disclosed that new enquiries were up to the highest level for nearly a decade and that sales have started to pick up slowly (albeit from a low base). According to a Rightmove statement released in May,
"This month sees a jump in new sellers’ average asking prices more reminiscent of a boom market. This is the largest May rise Rightmove has measured since 2003, when property was seeing annual rises in excess of 15%. ..."
Finally, recent figures from Halifax show the house price to earnings ratio down from its height of 5.86 in the third quarter of 2007 to 4.35 in the first quarter of 2009, near to its long term average of 4.02.
Where does this leave us? There is still some way until we are out of the woods as the macro-economic picture remains bleak. Unemployment continues to rise (7.1% during the period January to March 2009 up 0.8 on the previous quarter). The UK economic outlook is resolutely poor with even Alastair Darling, predicting that the UK economy will shrink by 3.5% this year (and he has been known to underestimate economic woes at times).
In a strange way this is great news for some property investors. The last thing many of us want is the market to recover too quickly: this window of opportunity is one that should be grabbed with both hands and made the most of. There is still shortage of good housing stock and there is less pessimism than at the start of the year: the Council of Mortgage Lenders recently said that it is likely to revise downwards its “pessimistic” figure of 75,000 repossessions in 2009. Auction results are also picking up: I attended the Allsop auction in London earlier this week and it’s noticeable that prices (and interest) are recovering somewhat- many lots sold at over-inflated prices with less apparent value than earlier in the year.