Introduction: Halifax reports house prices fell again in July
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
UK house prices dropped again last month, lender Halifax reports this morning, as higher interest rates cool the market.
But Halifax says it expects a “gradual” drop in prices in the coming months, rather than a “precipitous decline”.
Its monthly house price index, just released, shows that the average house price dropped by 2.4% on an annual basis in July. That’s a pick-up compared with June, when prices fell by 2.6% – the biggest drop since 2011.
On a monthly basis, the average house price fell by -0.3% in July, the fourth consecutive monthly decline.
It means the typical UK home now costs £285,044, down from a peak of £293,992 last August, on Halifax’s gauge of the housing market.
But, Halifax also says the market is showing ‘some resilience, although Southern England and Wales are seeing the most “downward pressure on property prices”.
For the 4th consecutive month – Avg house prices are chipped. In July 23 this was by -0.3% making the avg house now worth £285,044 down -2.4% annually and £8,948 less than Aug 22 peak. The South East & London are taking the biggest annual hit falling -3.9 & -3.5 @HalifaxBank pic.twitter.com/hgurpNuTJR
— Emma Fildes (@emmafildes) August 7, 2023
Kim Kinnaird, director of Halifax Mortgages, explains today’s report:
“Average UK house prices edged down slightly in July, with the monthly fall of -0.3% equivalent to a drop of around £1,000 in cash terms. While this was the fourth consecutive monthly decrease, all have been smaller than -0.5%.
“In reality, prices are little changed over the last six months, with the typical property now costing £285,044, compared to £285,660 in February. The pace of annual decline also slowed to -2.4% in July, versus -2.6% in June.
These figures add to the sense of a housing market which continues to display a degree of resilience in the face of tough economic headwinds.
This is the latest in a series of signs that higher interest rates have cooled the housing market.
Last week, rival lender Nationwide reported that house prices fell at the fastest annual rate in 14 years last month, by 3.8%.
And online portal Rightmove reported last month that the average price tag on a home coming onto the market fell by £905 or 0.2% in July.
Also coming up today
European stock markets are set to open lower, after a late drop on Wall Street on Friday night saw the Nasdaq 100 and S&P500 both post their worst weekly performances since March.
The Bank of England’s chief economist, Huw Pill, will hold a Q&A this evening about the cost of living and current economic conditions, just a few days after the BoE raised interest rates to a 15-year high.
UK companies posting earnings today – PageGroup – US companies – Monday – KKR, Tyson Foods – Economic data – Halifax House Prices, Germany Industrial Production, US Consumer Credit
— David Buik (@truemagic68) August 7, 2023
The agenda
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7am BST: Halifax UK house price index for July
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11am BST: Spanish consumer confidence for July
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5pm BST: Virtual Q&A with Bank of England chief economist, Huw Pill
Key events
Afternoon summary
Time for a quick recap.
UK house prices fell in July for the fourth month running. Halifax reported that prices dipped by 0.3%, or around £1,000, last month, and were 2.4% lower than a year ago.
Halifax also reported that first-time buyers were seeking out smaller properties, as rising interest rates hit affordability.
Kim Kinnaird, director at Halifax Mortgages, explained:
“In particular, we’re seeing activity amongst first-time buyers hold up relatively well, with indications some are now searching for smaller homes, to offset higher borrowing costs.
Halifax predicts prices will decline gradually through the year, rather than crashing.
LSL Property Services, one of the UK’s largest providers of mortgage and valuation services, issued a profits warning, due to the impact of rising interest rates on the housing market.
Germany’s economic problems have continued, with industrial production droppin gby 1.5% in June.
Sentix labelled Germany ‘the sick man of the eurozone’.
Back in the UK, the London economy and parts of the south-east have become more attractive to investors than the rest of Britain over the past year, according to a study.
The world’s biggest oil firm, Saudi Aramco, announced a near-40% fall in profits after a decline in crude oil prices and weakening margins in refining and chemicals.
One of Britain’s biggest boiler makers is to start manufacturing electric heat pumps to keep pace with what it describes as the biggest transformation since the switch from coal to gas devices in the 1930s.
A senior executive at HSBC has apologised after saying the “weak” UK government had caved in to the US in its approach to doing business with China.
In the US, a central bank policymaker is warning that more interest rate hikes will likely be needed in order to lower inflation to the official 2% target.
Fed Governor Michelle Bowman will tell a “Fed Listens” event in Atlanta that she is looking for more signs that inflation is on a ‘consistent’ path downwards,
In prepared remarks for the event, Bowman says:
“Given these developments, I supported raising the federal funds rate at our July meeting, and I expect that additional increases will likely be needed to lower inflation to the [2%] goal.
“I will be looking for evidence that inflation is on a consistent and meaningful downward path as I consider whether further increases in the federal funds rate will be needed, and how long the federal funds rate will need to remain at a sufficiently restrictive level.”
US consumer price inflation dropped to 3% in June, a two-year low.
French-Israeli telecoms billionaire Patrick Drahi has told debt investors today that he felt “shocked” and “betrayed” by an ongoing corruption probe in Portugal.
Drahi also insised that the investigation would have no impact on Altice International’s results, Reuters reports.
Drahi said the probe, which led to his right-hand man and Altice co-founder Armando Pereira to be placed under house arrest last month, had come as “a shock and as a huge disappointment to me”.
He added:
“If these allegations are true, I feel betrayed and deceived by a small group of individuals, including one of our oldest colleagues.”
The probe came at a tricky time for Drahi, who needs to manage the mountain of debt he built his empire on at a time of increasing interest rates.
Among other investments, he holds a 24.5% stake in UK telecoms group BT.
A Portuguese court last month ordered Pereira be placed under house arrest while an investigation into alleged corruption at the group’s local subsidiary is conducted, his lawyer said at the time.
Pereira, regarded as Drahi’s most trusted lieutenant, has denied any wrongdoing.
UK recruitment company PageGroup revealed today it has cut almost 450 jobs this year, after a slowdown in demand.
PageGroup told shareholders that the “challenging conditions” seen towards the end of 2022 continued into the first half of 2023.
It said “lower levels of both candidate and client confidence” meant companies are taking longer to choose candidates, who themselves are more reluctant to accept offers.
PageGroup says:
Reflecting the uncertain macro-economic conditions, temporary recruitment outperformed permanent, as clients sought more flexible options.
In line with these conditions, we reduced our fee earner headcount by 558 (-8.0%) in the first half, with reductions in all regions. Our total headcount of 8,572 is 448 (-5.0%) lower than at the end of 2022
Pretax profits have dropped by almost 45% this year, to £63.3m from £114.5m in January-June 2022.
More pubs in Britain went bust between April and June than in any quarter for more than a decade, new research today shows.
Closures jumped in the last quarter, as rising costs were exacerbated by the effects of the cost of living crisis on customers.
Price Bailey, the accountancy firm, calculated that 223 pub businesses had entered insolvency in the second quarter of this year, up from 200 between January and March.
Since last summer, 729 pubs have gone under, 80 per cent more than in the previous 12 months. The Times have more details.
Alex Jay, partner at Stewarts, says this shows the troubles in the UK economy:
“These statistics on record pub closures are a stark reminder of the real state of the economy, despite talk of avoiding a technical recession.
There will be a knock on – vicious circle – effect too. This is another property generating no income for its landlord, and drawing no customers to high streets already depleted by working from home practices.”
As well as cooling the housing market, higher interest rates are likely to push the UK into recession by the end of the year, warns Capital Economics this morning.
Ashley Webb, their UK economist, explains:
With CPI inflation soon to fall below average earnings growth, the cost of living crisis appears to be coming to an end. But households won’t suddenly stop feeling the pinch.
We suspect the level of real household disposable income will remain below where it was before the pandemic until early 2025. And with the full effect of higher interest rates yet to feed through, we still think the economy will enter a mild recession later this year.
Shares in UK housebuilders have slipped today, after Halifax reported that house prices fell again, by 0.3%, last month.
Persimmon, Britain’s largest housebuilder, are down 1.1%, while Taylor Wimpey have lost 1% and Barratt Development are 0.6% lower.
Persimmon are due to release financial results for the first-half of this year on Thursday.
Matt Britzman, equity analyst at Hargreaves Lansdown, says:
Housebuilder Persimmon is battling the tricky housing market, latest news from Halifax pointed to a 2.4% drop in prices over July in a third straight month of declines.
Margins are under pressure from higher costs and falling prices, results should shed light on the impact and give an update as to whether it’s on track to deliver the close to 9000 completions expected over the year.
UK Housing Prices Extend Decline 📉
Halifax house price index dropped 2.4% YoY in July, marking 4th straight decline.
The average UK house is now at £285,044, down from a peak of £293,992 last year.
Market eyes further fall in 2023, but prior gains remain 📉🏘
#UK #Prices pic.twitter.com/K23UzyxdOh— OpoFinance (@OpoFinance) August 7, 2023
In another blow to Germany’s economy, industrial production dropped more strongly than forecast in June.
Production fell by 1.5% compared with the previous month, the federal statistics office said on Monday. Analysts polled by Reuters had expected a smaller decline, of 0.5%.
🇩🇪 Real industrial production in Germany is down 1.5% in June MoM and 1.7% YoY (provisional results)
Key drivers:
➡️ automotive industry -3.5% MoM
➡️ construction -2.8% MoMPositive development was observed in pharma industry (+7.9% MoM). Outside of industry, energy production… pic.twitter.com/gA9jzOrpZi
— Nikolay Kolarov, CFA (@libertniko) August 7, 2023
This latest drop in German industrial production in June is another illustration of the country’s ongoing stagnation, says ING’s global head of macro, Carsten Brzeski.
Brzeski adds:
Industrial production is still more than 5% below its pre-pandemic level, more than three years since the start of Covid-19.
Production in energy-intensive sectors escaped the negative trend and increased by 1.1% MoM in June, still down by more than 12% over the year.
We looked at this issue in more detail in yesterday’s Observer:
Germany becoming the ‘sick man of the eurozone’, warns Sentix
Investor morale in the euro zone has picked up this month, but remains rather weak.
German research group Sentix reports that its Investor Confidence Index rose this month, ending a three-month slump.
It increased to -18.9 points in August from -22.5 in July, better than expected.
Sentix warned, though, that Germany is becoming the ‘sick man of the eurozone’, as its economy fails to grow in recent quarters.
The largest economy in the euro zone is becoming the sick man of the Eurozone and is weighing heavily on the region. The overall index for Germany falls for the fourth time in a row to -30.7 points.
LSL Property Services issues profit warning as interest rate rises hit mortgage market
The slowdown in the UK property sector has hit earnings at one of the UK’s largest providers of mortgage and valuation services.
LSL Property Services, which provides services to mortgage intermediaries and estate agent franchisees, warned profits will miss expectations this year.
LSL told shareholders that the Bank of England’s large increase in interest rates in June had hit demand.
The BoE lifted bank rate by half a point in June, from 4.5% to 5%
In its results for the first half of this year, LSL says this increase has cooled demand (even before the latest rate rise to 5.25% last week). It says:
As expected, the Group’s results over H1 were impacted by significant changes in the mortgage market, particularly our Surveying Division, as well as Financial Services. We had expected some of these changes to moderate during H2, with improved consumer sentiment and more stable lending conditions
However, the larger than expected increase in the Bank of England base rate announced in June has had a material impact on the mortgage market, reducing the level of Purchase and Remortgage activity and increasing further the proportion of Product Transfer business (where customers stay with their existing lender on completion of their mortgage scheme).
Second-half profits are now expected to be lower than the company’s previous expectations, LSL adds.
Shares in LSL are down 11% this morning.
In the City, the UK’s FTSE 100 index of blue chip stocks is down around 0.5% or 41 points in early trading, at 7521.
AJ Bell investment director Russ Mould says the possibility of further increases in US interest rates are dampening the mood, after last Friday’s US jobs report:
“Officials at the Federal Reserve are suggesting they are not yet done in their battle with rising prices. Having been slow to respond to what they believed was transient inflation in 2021, it seems central banks like the Fed are in no mood to be complacent.
“US jobs data which showed earnings rising faster than expectations on Friday will only strengthen this resolve.
The big move higher in UK rates continues to have a dampening effect on the UK housing market, Mould adds:
Figures from Halifax unsurprisingly showed a fourth straight month of declining prices. With mortgages becoming less affordable it is proving increasingly difficult for people to get a leg up on the property ladder or even join the ladder in the first place.
“Housebuilder Taylor Wimpey was among the top fallers on the FTSE 100 this morning. The sector faces a very different environment today after years of strong property prices, cheap mortgages and state support for first-time buyers.”
Here’s our news story on this morning’s Halifax house price report:
UK lenders have not, yet, made significant changes to mortgage rates since the Bank of England lifted base rate to 5.25% last Thursday.
Moneyfacts reports that the average 2-year fixed residential mortgage rate has fallen slightly to 6.84% this morning, down from 6.85% on Friday (and for most of last week).
The average 5-year fixed residential mortgage rate today is 6.35%, unchanged from Friday.
