The Property Game

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26 June 2009

As the rain patters against the window pane only to be replaced with bright sunshine five minutes later, it is a clear seasonal reminder that that the British Summer has arrived. This would also traditionally tell of the passing of the more buoyant Spring housing market as buyers thoughts turn to balmy summer evenings, holidays and Wimbledon.

As this year has progressed there has been increasing talk of recovery; house price and mortgage lending indices have shown improvement, industrial indicators have stabilised and Economists have been forecasting the end date for the recession.

As bust follows boom, and rain delays follow the fourth set tie break, we are all now very aware of the cyclical way of the world and the fact that for the first time since the Great Depression we have a Brit as a serious contender for Wimbledon may be reasons for optimism, but not for the reason you may think.

In 1934 Fred Perry won his first Wimbledon title and this was also the year during the Great Depression when house prices hit their nadir, having dropped 15% in value. This suggests a pattern that has, until now, been missed by mainstream economic analysis; British sporting success as an indicator of housing market downturn.

In-depth historic economic analysis shows that after Fred Perry's first victory in 1934 the housing market saw a 2.9% annual increase by 1935, and after his second win there was a 3.7% annual increase. This year also saw a British lady, Dorothy Round, takes the ladies' championship.  This relationship between the market nadir and a dual British victory, while disturbing, have a potential upside; with Nadal out of the running at this year's Wimbledon, housing market improvement is looking ever more hopeful.

I will have to agree with some people reading this; economic forecasting by tennis results alone is not to be relied upon (even if it is arguably as scientific as some other methods). That is why if you consider the 1990's housing market hit its lowest point in Q4 1992, the year Nigel Mansell was crowned F1 Champion for the first time, I am sure you will agree the evidence starts to become irrefutable; British sporting success equals house market turmoil. On the upside the success of Lewis Hamilton last year and Jenson Button's strong form this year must confirm the fact we are reaching the base of this economic slump and can look forward to market improvement; after 'The Mansell Downturn of '92' the market saw a 2% year on year improvement by Q4 1993.

As British sporting potential indicates that housing market improvement may be on the way mortgage lending figures from the Bank of England's Lending Panel have continued to show improvement for the month of May; both in value of lending and the percentage of acceptances for house purchase - now standing at 76% of house buying applications, up from 70% in January . It should be noted that while these increases are fairly modest and lending remains 50-60% below the levels that were common for most of this millennium, improved lending will be crucial to the market's recovery and it was a key predictor in previous cycles.

So what can we expect from the rest of the summer? In short, we have seen a return to the more traditional seasonal market which was usurped with credit fuelled frenzy at the top of the market. Family buyer's attention has drifted from the housing market to more relaxing pursuits and vendors are recognising that the market may be near its base so where possible are avoiding entering the market. However, many buyers remain on the hunt and motivated to purchase and with property becoming more sparse, competition for quality remains strong. As lending, hopefully, improves over the year we should see renewed appetite as the summer months fade and buyer return from their holidays to realise they still need to move house. This said, those that keep in the game over the summer months may find that the unusual conditions and distracted competition produce unexpected and beneficial results.

Therefore, for those buyers or sellers currently considering their options this summer I would recommend watching the results of Messers Button and Murray very closely, historic economic analysis conclusively proves that with every victory we are getting closer to market recovery. 

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Andrew Meehan
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e: andrew@rettie.co.uk

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