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The art of polishing a turd

As winter approaches, the economic outlook for the UK is bleak.  And so, government officials and establishment media editors are under pressure to find economic good news wherever they can… even if it means not delving too deep beneath a headline.  So it was yesterday, when the BBC’s Kevin Peachey and Tom Espiner were able to gleefully inform readers that:

“House prices had the biggest monthly rise in October for more than a year, according to the Nationwide…”

At face value, the headline appears at odds with the gathering mortgage default crisis, rapidly increasing business failures, and even the official unemployment rate ticking upward.  Only by reading between the lines do we get a glimpse of what is actually happening:

“The average cost of a UK home in October 2019 was £215,368, according to Nationwide.  Although it is difficult for many first-time buyers to secure a mortgage at the moment, they will welcome the correction in prices.” (my emphasis)

And further down the page:

“According to the latest available official data, cash buyers currently account for more than a third of housing sales.” (my emphasis)

The key to understanding what is going on here is to note that when the Bank of England started raising interest rates, commercial banks began tightening their lending standards.  In practice, no longer making loans to those unable to put down large deposits… that is, mostly first-time buyers who would normally start by buying cheaper properties.  Contrast this with the kind of people who have enough spare cash laying around that they can buy a property without needing a loan at all.  Clearly, these are not people who are going to be buying bottom of the market starter homes.  In between these two extremes will be people who have sufficient collateral – cash or assets – to be able to secure a mortgage in spite of the tighter lending standards.  Again, these are unlikely to be looking for cheap houses in the rougher neighbourhoods of the UK’s towns and cities.

The Nationwide survey reported by the BBC merely measures the average sale price each month.  But at a time when the absolute number of sales has crashed, with low-cost housing being the main casualty, the inevitable result is that the average price gets skewed toward the expensive end of the market where sales are still happening.

Ask the millions of young people currently trapped in an increasingly expensive private rented sector and unable to secure a mortgage of any kind whether the housing market is improving and you will get an entirely different response.  Indeed, the fact that the average house price is rising means that it is even harder for young people to escape the private rented sector… irrespective of what BBC journalists may tell them.

As the somewhat earthy British saying goes, “you can polish a turd as much as you like.  But when you’re done it will still be a turd.”

As you made it to the end…

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