UK housing market: prices to drop further (but likely to avoid a crash)

Jana Hlistova

Jul 16, 2023

Welcome to our #192 weekly newsletter.

“For women taking control of their financial future”

-Jana Hlistova

From The Purse

In this week’s newsletter, we focus on the UK housing market and why prices have only fallen 4% so far.

Lower demand should be driving down home prices. So what is going on?

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And you can review the news in brief so you stay on top of global financial, economic and investing trends.

I hope you enjoy this week’s newsletter.

Until next week,

Jana

UK housing market: prices to drop further (but likely to avoid a crash)

House prices have dropped by 4% so far, but they are likely to fall further.

The Royal Institution of Chartered Surveyors has said there is “a renewed deterioration in UK home sales”, as reported by The Guardian.

Would-be buyers of homes hit an eight-month low in June, and the estate agent Winkworth warned this week on profits because of a slump in activity.

According to Moneyfacts data, a typical two-year fixed deal has risen to 6.66% even though Barratt Developments has said that demand from existing homeowners remains resilient.

But why have UK house prices only fallen 4% so far?

We’re not yet in a recession.
However the downturn is not expected to be as deep as after the financial crisis 2008/9 or in the early 1990s.
Sharp rises of unemployment is not ‘on the cards’ this time.
Instead we have earnings growth ripping along at 7.3% in the three months to May compared with a year earlier.

Calculated by Nationwide last month, a 10% deposit on a typical first-time buyer home is equal to about 55% of gross annual income, down from the all-time highs of 59% of late 2022 but still marginally above 2007-08 levels.

However the cost-of-living crisis is making it close to impossible for most to save for a deposit. Therefore it is more than likely that house prices will fall even further (as less people will be able to afford to buy).

According to think tank Capital Economics, their forecast is that UK house prices will decline by 8% over the next 12 months, with the overall drop to 12% from the peak.

What next? Check out these resources:

Financial news

FTSE 100 marks best day of 2023 as US inflation falls to 3%. The FTSE 100 index gained 133.5 points on Wednesday to 7,416 points, up 1.83%, its best day since November 2022.
China slides to brink of deflation, adding stimulus urgency. CPI was 0% YoY in June, lowest rate in >2years. Producer price deflation deepens to worst since December 2015.
BlackRock is eating the world: Assets under Management (AuM) rose to $9.4tn in Q2 2023, up from $8.5tn a year earlier & $9.1tn in Q1, mainly driven by buoyant markets. Net inflows for the quarter were $80bn, down from $89.6bn a year ago and $110bn in Q1, amid heightened economic uncertainties. Analysts were expecting $105bn in inflows.
Goldilocks on steroids: US 2 year yields keep falling. Drop 12bps to 4.63% because markets expect 6.6 interest rate cuts of 25 basis points each by the end of 2024.
It looks as if the markets first underestimated the rise in inflation and now the plunge. US inflation cools to 3% YoY in June from 4% in May; core dropped 50bps to +4.8% YoY down from +5.3%.
Swiss Franc rises to strongest against the Dollar since 2015 after weaker than expected US inflation data.
European Central Bank QT continues with balance sheet shrank by another €12.8bn to €7.207bn, lowest since March 2021. ECB's total assets now equal to 53% of Eurozone GDP vs Fed's 31%, SNB's 121%, and BOJ's 128%.
Thursday: the pound has hit a fresh 15-month high after the UK economy shrank by less than expected in May.
UK economy shrinks by 0.1% in May after coronation festivities. The Office for National Statistics said that gross domestic product (GDP) fell on the month, after growth of 0.2% in April, as manufacturing, energy generation and construction all dropped.
Nasdaq 100 rebalance: weight of Big 6 comps Microsoft, Apple, Alphabet, Nvidia, Amazon, Tesla reached 50.9%. Nasdaq methodology paper implies that group’s influence needs to be slashed to 40%. Cutting megacaps down to size will enable tech’s best-known benchmark to offer better diversification and regain its balance.
The Adobe online price index tumbled 2.6% YoY in June, the biggest drop since May 2020.
Goldman Sachs says India will overtake US to become world's second-largest economy by 2075. On top of a burgeoning population, driving the forecast is country’s progress in innovation & technology, higher capital investment and a rising worker productivity.

Crypto: bitcoin, ethereum, DeFi & NFTs

Crypto spot volumes increase post Ripple ruling. Data from The Block's data dashboard shows the seven day moving average for spot trading volumes on exchanges increased from $12.74bn on July 12 to $16.56bn on July 14.
In landmark decision and a major victory for Ripple, a federal judge ruled that the Ripple Labs XRP token is a security when sold to institutional investors but NOT the general public. XRP jumps 30%. Whether cryptocurrencies are securities has been a major question hanging over the industry, which has long fought efforts to regulate it by arguing that they are not.
BlackRock CEO: Larry Fink: ‘crypto will transcend anyone currency’. The boss of the world’s biggest asset manager on Friday continued to sing Bitcoin’s praises.
SEC formally accepts BlackRock spot Bitcoin ETF application for review. The company filed a revised application, adding a "surveillance sharing" clause that would involve the Coinbase crypto exchange monitoring and reporting possible illegal activity.
JPMorgan says Ripple's XRP ruling is a win for Coinbase. Ripple’s XRP ruling favours Coinbase, according to JPMorgan analysts, because it may be applied to the 13 tokens the SEC alleged are securities in its lawsuit against Coinbase last month.
Coinbase's market cap relative to Uniswap surges. Coinbase has seen its shares surge by more than 213% since the beginning of the year-supercharged by BlackRock's surprise filing for a spot bitcoin exchange-traded fund.
Cathie Wood's Ark Invest sells more Coinbase shares worth over $50 million. Ark Invest sold 478,356 shares, worth more than $50m of Coinbase as the stock continued to rally.
Gucci and Christie's team up for generative Art NFT auction. Luxury fashion brand Gucci is partnering with auction house Christie's for an NFT sale called "Future Frequencies," showcasing digital art inspired by Gucci design elements.

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