State of the market

‘Quantitative easing’ is no doubt the buzz word of the moment. Put simply, this refers to the government’s £125 billion programme of injecting money into the economy.

Why has this been considered necessary? The US housing market has been described as being in a catastrophic state. Unemployment in the US is at a 26 year high and there is no demand take-up predicted in the short to medium term. This, along with the weak US economy places a massive dampener on future global growth prospects.

However, where there are dark clouds there is also sunlight. The international business activity indicator provided by JP Morgan and made up of the Global Composite Purchasing Managers Index shows a general rise in activity.

This is no doubt led by the emerging markets, who have had less exposure to long term debt and US sub prime markets.

For these markets to continue gaining momentum, a ‘driver’ will be the future cost of fuel/oil. For the time being this is judged as being at a rate that will not dampen the expectations of future growth but this has to be carefully watched.

Although the base rate is currently 0.5 per cent, the cost of borrowing in the UK is many points higher than this. The finance markets remain tight, with lending extremely hard to come by, without pre-requisite levels of equity. We see this situation improving over the next six months, as lenders ease their previously stringent lending criteria.

There is no doubting the housing market is beginning to show some ‘green shoots’, albeit in terms of modest levels of increased turnover.

However, there is likely to be an undersupply of new build product for some time to come, as developers have to build-out previously mothballed schemes. Currently reported prices rises, as seen in some sectors, are mainly to do with a shortage of supply of certain types of housing.

As far as new build housing is concerned, this is likely to be the case for at least a year.

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