Today we consider the UK housing market.
The outlook has not been clear for some time. On the one hand, in many parts of the country, house prices are "too expensive" by just about any traditional measure, and need to fall.
On the other, sellers have mostly refused to lower their prices. And government intervention, whether via low interest rates or high stamp duty, has only added to the atrophy.
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The result, for two or three years now, has been stagnation. Neither the bulls nor the bears have won the argument.
Will that change in 2018?
Sing me a sad song for the estate agents
In 1999, before the great era of central bank interest-rate intervention began, the ratio of house prices to earnings stood at 3.7. Today, according to the Office for National Statistics, the house-price-to-earnings ratio stands at 7.6.
This varies considerably by region. Copeland, West Cumbria, is the most affordable part of the country (in terms of local earnings) at 2.8 times the average pay packet. Kensington and Chelsea is where the ratio is at its highest at 38.5 times.
Of course, this is just one measure of affordability. Earnings do not matter so much if you already own a property. What is more important are financing costs; low interest rates have made mortgage repayments very cheap for a very long time.
And as an indicator of whether to buy or sell, the house-price-to-earnings ratio has not worked for many years. As regular readers know, I like look to other bellwethers the state of the companies that operate in the sector: the estate agents, the portals and the builders.
We'll start with the estate agents. (NB: all of these charts are three-year charts. The red and blue lines are the one-year and 55-day moving averages, which will give you an idea of the trend.)
Here's Countrywide (LSE: CWD), the UK's largest estate agent.
This is not good. At all. What was a 600p stock three years ago is now an 80p stock. New lows were hit just this week. The decline is inexorable.
London-centric Foxtons (LSE: FOXT) is not much better.
From 290p in 2015 to lows around 65p. What is more positive about Foxtons is that there appears to be some sort of stabilisation around the 65p level. The 55-day moving average is now sloping upwards, ever so slightly, indicating a change in trend. The worst for Foxtons could be over.
One obvious reason for the weakness in these two agents might be that they have lost market share to cheaper, online versions such as Purplebricks (LSE: PURP). The story here is almost the complete opposite. In terms of share price performance, it has done everything the traditional agents haven't. From below 100p to over 500p.
However, even although both the one-year and 55-day moving averages are sloping up, indicating a rising trend, I would be nervous owning this stock. You could make the argument that it is fully valued: its market cap is over a billion, last year it was loss-making, this year its forecast P/E is 600.
But my main concern is that chart. It has double-top written all over it and my instinct says it has run out of steam at 500p. It is one that could easily come back to earth with a bump.
Property portal Rightmove (LSE: RMV) hit new highs at the beginning of the year, though those gains have since been given back. Looks like a range-trader to me.
Zoopla (LSE: ZPG), on the other hand, is now trending lower, having had an excellent 2015 and 16.
Are the good times over for the housebuilders?
So to the builders. These have been one of the success stories of the post-financial crisis era. And I'm going to use five-year charts for these.
Let's start with the biggest, Barratt (LSE: BDEV).
I've got to say, based on hocus pocus charts alone, I would be very worried owning this stock. It, too, has got double top written all over it.
In October last year it looked like it was breaking out to new highs, but that's proved to be a false break, and since then it has gone from 700p to 550p at some speed. I can't help thinking 350p beckons.
Taylor Wimpey (LSE: TW) is telling the same story.
Persimmon (LSE: PSN) has been probably the stand-out performer, bucking the double top of the others.
It hit that same wall last October, and now it's turned down.
Finally, here's Berkeley Group (LSE:BKG), which peaked around the beginning of the year.
It has done extremely well.
Overall, it's not looking good for property - but a crash is unlikely
I turned bearish on London new-builds in 2015, because of the over-supply of not-particularly-nice two-bed flats coming to market (I was the first onto that particular story).
But it was impossible to be bearish on UK property as a whole, because, even if the estate agents were weak, the builders were strong. (There were also company-specific reasons for the agents' weakness).
But looking now at the agents, the portals and the builders; looking at current property valuations; at the outlook for interest rates; at the stagnancy in the market, and the sheer cost of buying a place to live it all makes me bearish.
Yet property remains a religion in the UK. For those that own, a house remains their most valuable asset. No government wants a property crash on their watch.
The market has become quite area-specific. London new-build remains a disaster zone. But in general my call is this: more stagnation and atrophy with a slightly downward bias, but a crash such as we saw in 1989, despite current overvaluations and demographics, remains unlikely.
Happy Valentine's Day to all. Go and give your loved one a big fat kiss!
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
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