Perhaps the single most important barometer of the UK housing market, and a pretty good barometer for the UK economy, has turned upwards. This could be a really important development.
Of all the myriad of indexes and surveys that track the UK housing market, the Residential Market Survey from the Royal Institution of Chartered Surveyors – or the RICS index – is perhaps the most interesting.
The headline index is created by asking surveyors if prices went up or down in their region in the last month and the percentage balance forms the index, meaning any score under zero is saying that more surveyors recorded a fall than a rise, any score over zero, the opposite.
The RICS index also has lots of subsets that provide interesting extra information.
It is very rare indeed for the index to cross the zero axis, either falling below zero or rising above it. The index fell below zero in August 2004, August 2007 and August 2010 and rose above zero in November 2005, August 2009 and April 2013.
On each occasion, the UK housing market and UK economy tended to either rise or fall, roughly with the index, but, in the case of the economy, with a time lag of a few months.
Growth in UK GDP slowed in late 2004, recession began in 2008 and the UK went close to recession late 2010/early 2011. The UK economy also enjoyed a strong pick-up, with a time lag, on each of the occasions after the RICS index rose above zero.
This is all very interesting because there have been two occasions in the last 18 months or so, when the index fell sharply. The RICS index fell close to zero in the summer of 2016. No wonder many analysts had thought that the UK was close to recession. But in August 2016, the index recovered sharply, as did the UK economy soon after that.
And in November 2017 the RICS index fell to zero. Had the index fallen by just a fraction in December, this would have pointed to trouble ahead.
But it didn’t, the index recovered sharply, rising to plus 8 in December.
This is good news – if the past relationship between the RICS index and the UK economy is any guide, it means that UK plc is passed the worst.
And yet, the housing market itself is as quiet as a library.
An index tracking new buyer enquiries fell to minus 15, while an index tracking new sales instructions stood at minus 10.
It seems that both demand and supply is exceptionally low.
An index, tracking rent expectations, fell from 24 to 19, suggesting modest rises in rent is occurring.
But house prices are still going up, largely because there are so few properties on the books of estate agents, an average of 45 unsold properties per surveyor.
It seems that house prices are still rising, the UK economy will see a modest rise in growth in the months ahead, but the elevated level of house prices to earnings is keeping a lid on housing demand, while a shortage of land and finance for house builders, is keeping a lid on housing supply.