Housing market gloom may be overdone
COMMENT "The big question is whether things have changed fundamentally and irreversibly for the worse, or whether this is no more than a temporary bear market"
Tuesday 23 May 1995
The difficulty with forecasting any market, whether it be houses or stocks, is that the past is rarely a decent guide to the future. That means extrapolating from recent trends hardly ever proves any more accurate than a hopeful guess. Coming from institutions with a vested interest in talking up the market, it is even more suspect.
No one would deny that the recent past paints a bleak picture. Mortgage demand in April fell by nearly pounds 1bn compared with March, sales of houses were almost a fifth lower than a year ago and, according to the Halifax the average price of a house is 1.4 per cent lower than a year ago. And the number of transactions taking place in the market is at an 18-year low.
The big question is whether things have changed fundamentally and irreversibly for the worse, or whether this is no more than a temporary - albeit deep and prolonged - bear market.
According to the optimists, it is the latter. Recovery has been delayed, says an increasingly desperate industry, because of the whittling away of mortgage tax relief, the forthcoming changes on income support for mortgage payers who lose their jobs and continuing fears about rising interest rates.
For the Jeremiahs, the nature of the market has changed for good, rendering traditional affordability measures meaningless. People can no longer expect lifetime employment on steadily rising salaries and, as a result, they are shunning long-term commitments to housing, demand is falling and prices will therefore dwindle in real terms.
The latter point of view, however, sounds remarkably similar in tone to the headlines in 1975 when, at the end of the longest bear market since the war, share prices had lost 73 per cent of their value in 136 weeks of relentless retreat.
If that seems a long time ago, it is no longer than Professor Wood's modest housing forecast. The stock market has since recovered in a way that makes the slump of the mid-1970s look barely noticeable.
The housing market is not the same as the stock market, of course, but there are similarities. One is that during the bull phase any old dross gets dragged up, only to crash out of bed when investors grow more cautious. That is why the market is so patchy at the moment, with home-owners in smartish areas up the road from a good school asking: slump, what slump? As with shares, selection has become much more important than timing.
Houses and shares are very different sorts of assets. You don't have to buy shares and if you do they can generally be expected to yield an income; on the other hand you do have to live in a house and they come from a limited stock. Houses are also more illiquid than shares and much more expensive to get in and out of.
Human nature, however, governs all markets in the end, and in that respect the same psychological factors govern both house and share prices - fear and greed. For the time being fear still has the upper hand but it can change very rapidly.
Common sense over industry
The first competitiveness White Paper a year ago was heavily oversold ahead of publication, and deserved the raspberries it got. It was a compendium of old measures and a few new ones, dressed up with some modest extra spending on employment and training.
The second White Paper is rather better, and went down well yesterday with the Institute of Directors and the Confederation of British Industry. Howard Davies, director general of the CBI, gave it the backhanded compliment of saying the Government was now "quite close to having an industrial strategy," a remark that under Lady Thatcher would have had ministers wondering what they had done wrong.
There is a list of 70 new initiatives, and pounds 165m of new money, this time mainly to help small businesses. Mr Heseltine's officials have also written a progress report on actions to promote competitiveness recommended in the last White Paper, and it is hardly a surprise to find they award themselves 297 marks out of 300. The missing three are the handful of 1994 initiatives that fell by the wayside. The paper also contains, for the first time, a report on the Department of Trade and Industry's sponsorship of individual industries.
The decision to package the White Paper with new science and technology initiatives and the Treasury's programme for getting better value for money from public spending also give the exercise greater depth. But if these items were all the White Paper offered, the reaction would be a yawn, if not another raspberry. The difference is that Mr Heseltine has at last deigned to explain in some detail what he is really up to.
He now foresees a rolling series of assessments, with a third one slotted in for next year, and he would clearly like to make them a permanent feature of the DTI. Mr Heseltine even admits a parallel with the work of the defunct National Economic Development Office, which was closed down in the Thatcher years, but says the work is now done on a "dramatically bigger scale" with far higher political priority.
This is nothing short of a return to pre-Thatcher modes of thought about industry, in which the Government regards itself as a vital facilitator of change. Done at relatively low cost without expensive 1970s-style support schemes for lame ducks, this marks a return to common sense in the Government's relationship with industry.
A poor bargain for Cordiant
It appears the contracts tying senior executives to the former Saatchi & Saatchi, now renamed Cordiant, were not worth the paper they were written on. As a result of the global settlement announced yesterday, Cordiant has agreed to let all its defecting staff off the hook, allowing them to join Maurice Saatchi. While Cordiant gets a few consolation scraps - a no further poaching agreement until the end of the year in particular - there is little doubt who has got the better end of the bargain. Cordiant has even dropped claims to $40m pocketed by Maurice and Charles Saatchi in a deal involving the footwear manufacturer Adidas, and agreed to pay some of the other side's legal costs. In people businesses, it appears, the poor old shareholder just cannot win.
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