The housing market looks in remarkably robust shape, but as time has taught us, sentiment in the sector can quickly change.
A position of strength can vanish at the most inconvenient time – just ask the Prime Minister.
The UK housing cycle tends to last between 15 and 20 years, and the last major dip came a decade ago, so history would tell us that the foundations currently being dug may be tested by the end of the decade.
No previous cycle has dealt with Brexit though, and the resilience of the housing market since the vote to leave the European Union has defied the expectations of almost everyone.
After a strong 2016, Persimmon has reported a 30 per cent uplifts in half-year profits. Its share price has hit an all-time high. The group reinforced how strong the market fundamentals are – there is a shortage of new houses, interest rates are historically low, mortgage availability is good.
All is well, but for how long? Mortgage approvals were down in June, and lending was broadly flat. An interest rate rise is on the cards, likely in early 2018.
There is a sense of making hay while the sun shines about the sector at the moment, and that will undoubtedly help address the housing shortage in the near-term but take note of Persimmon’s caution with respect to land investment.
The rate of price growth is slowing, and will likely keep heading in the that direction – even if a crash is unlikely.
Conversely, the household income squeeze will likely tighten as we move towards Brexit.
Persimmon talked of “remaining vigilant” to broader external conditions. As that household squeeze accelerates, the plan for buying a new house may be put on hold for just long enough that interest rate rises make it too costly anyway.
The market may indeed be robust but Brexit is still likely to test the strength of those foundations.
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