A remarkable turnaround in the housing market and the wider economy appears to be under way, signalling the end of the most vicious phase in the deepest recession since the 1930s.
The Royal Institution of Chartered Surveyors (RICS) is now predicting that property prices will end 2009 higher than they started, and the Halifax house price index registered a rise of 1.1 per cent in July, a slight upward trend confirmed in other data from the Nationwide and the department of Communities and Local Government.
On a quarterly basis, smoothing out volatile monthly changes, the three months to July saw a 0.8 per cent rise in house prices, compared to the three months to June – the first quarterly increase since the onset of the credit crunch in October 2007.
The RICS' senior economist, Brigid O'Leary, commented: "There has been a clear change in the housing market over the past few months and, as a result, it is unlikely that we will now see the kind of house price falls widely predicted at the start of the year. However, the outlook for 2010 is fairly uncertain and there is a real risk that prices may slip back again. Affordability is still stretched and mortgage finance, while improving, is fairly hard to come by."
The Bank of England's Monetary Policy Committee announces its latest move today, with speculation mounting that the stream of relatively optimistic news about the housing market and the economy will reassure the Bank that the £125bn they have pumped into the economy has begun to ease the downturn and that they have no immediate need to massively expand their programme of "quantitative easing", so-called printing money. The MPC will almost certainly keep Bank Rate at 0.5 per cent.
The RICS say that mortgage approvals are expected to edge up to around 55,000 per month by the end of the year, about double where they were at the start of 2009. Even so, they will be below the lows seen during the housing crash of the early 1990s, and are consistent with gently falling prices. Most observers believe that the house price revival, when it arrives, will be extremely subdued, restrained by rising unemployment and a squeeze on real incomes as households pay off debt and pay higher taxes to deal with the hole in the public finances.
Yet there is a growing feeling that the economy may have reached a turning point. The National Institute for Economic and Social Research said yesterday that the economy bottomed out in May: "The pattern emerging supports our view that output is now stabilising and that, in the absence of further shocks, the period of sharp recession is over; we are hopeful that May will prove to be the trough of economic activity."
Most economist agree that the third quarter of this year will see a return to growth, ahead of the Chancellor's Budget time prediction that growth would resume at around the turn of the year.
The Office for National Statistics added to the sunny atmosphere with its release showing that industrial production rose in June, by 0.5 per cent, much more than expected.
In the service sector, the monthly survey of business sentiment by Markit and the Chartered Institute of Purchasing had the headline reading on business activity surging ahead from 51.6 to 53.2 over July: A reading of 50 above 50 signifies growth. The CIPS surveys are closely monitored by the MPC as they have been such a long term reliable indicator of trends in the economy. The service sector accounts for about 70 per cent of the British economy, and there is gathering evidence of improving sentiment in construction and manufacturing, with output and activity following suit in six to nine months' time.
A number of business leaders, including the chief executives of HSBC and Taylor Wimpey, have called the bottom of the recession recently. Yesterday, market leader Carpetright – a key indicator of the health of the housing market – posted its first quarterly rise in sales since 2007.
Rise in house prices in three months to July.Reuse content