Mixed signals make future hard to read

29 March 2010

It is difficult to say what impact the Budget will have on the housing market. The Stamp Duty concession for first-time buyers is expected to boost sales but in reality it will only modestly offset the initial costs of entering home ownership for most first-timers.

A much greater hurdle for most of them is the size of deposit they now need - typically 25% of the purchase price. And that is unlikely to change significantly in the foreseeable future.

Generally, it is difficult to pick out underlying trends in the housing and mortgage markets at the moment and not much easier to do so for the economy at large. The end of the last Stamp Duty holiday in December pushed many housing transactions to complete before the end of last year. There was an inevitable drop in January and little improvement in preliminary February figures.

Given this backdrop, it was not particularly surprising to see monthly falls in some house price indices in February and we are likely to see modest volatility in the coming months until greater certainty over the economic and political environment emerges.

The outlook for the economy is also difficult to read. The recession technically ended late last year and we came into 2010 with a little more momentum than previously thought.

But there have been mixed signals from the early part of this year, with several surveys showing an improvement in activity, while the official data sometimes disappoints.

As we look further forward, we expect better signs to emerge later in the year as confidence in the economy improves and we move past the election.

But the need for the authorities to rein in the fiscal deficit will inevitably slow the economy.

At the same time, the funding markets, while certainly better than a year ago, remain difficult and will limit the flow of available housing finance.

 

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