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Michael Baxter

Bull and bear: Are house prices set to rise in 2013?

Written by: Michael Baxter on November 14th 2012

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news: Today’s stories: Are house prices set to rise in 2013? Inflation rises, employment up, wages up too. Standard Chartered hits back. Cisco shows we live in an economy of two halves. Companies in the news: Vodafone, Capita, CRH, Cineworld

Are house prices set to rise in 2013?

The latest monthly survey from the Royal Institution of Chartered Surveyors (RICS) was out yesterday, and it was good.

The headline index, which is produced by taking the percentage number of estate agents who said house prices were up last month, and subtracting the percentage number who said down, stood at minus 7. That was in fact the highest reading since June 2010.

More to the point, October saw a sharp rise in interest from buyers. The sub-index tracking buyer enquiries rose to plus 18, the highest reading since December 2009.

RICS stated: “Until last month, interest from would-be buyers had remained relatively subdued since December 2009. However, during October chartered surveyors reported a considerable rebound in new buyer enquiries…It appears that the growing optimism shown in recent months may slowly be translating into an upturn in activity.”

The Funding for Lending scheme may have had a lot to do with the more upbeat readings too.

So does this mean house prices are set to rise again next year? The bulls may suggest the evidence is overwhelming, but the bears have a response.

For one thing, as RICS pointed out: “Despite the overall market picture seeing a gentle improvement across the country, this did not necessarily translate into a significant boost in sales. In the three months to October, UK surveyors sold on average 15.2 homes (from 14.9). While representing a small upturn on the previous month’s reading, transactions still remain historically low across most parts of the country.”

For another thing, the equation that determines prices has two sides to it: demand, and supply. And while enquiries rose, so too did new instructions. The index tracking new instructions rose to 12, the highest reading since May 2011.

Ian Perry, RICS housing spokesperson, commented: “Initiatives like the NewBuy scheme are all well and good but they need time to bed in and take effect, and access to affordable mortgage finance is still very difficult for many first time buyers. With the Autumn Statement around the corner, we would like to see the government continue to focus on delivering new homes and encouraging the banks to lend at affordable levels.”

Matthew Pointon, Property Economist at Capital Economics, said: “Overall, these results suggest that housing market activity could rebound at the same time as prices continue to drift lower…. But we expect unemployment to rise next year, and with prices still overvalued the risk of a less favourable, sharper price correction is significant.”

Inflation rises, employment up, wages up too

Last month saw a big jump in inflation rising from 2.2 to 2.7 per cent. That’s CPI inflation anyway.

The RPI measure rose from 2.6 to 3.2 per cent.

We are beginning to see the effect of rising utility prices. Food prices rose too. These are one-offs, of course, and in time inflation should fall back, but it does seem that the effect of rising utility prices has only just begun.

Capital Economics reckons inflation will fall back to target at the end of next year (it’s always next year).

As for jobs, you may recall that last month’s data showed that UK employment had hit an all-time high. Well, it has risen again, up by 100,000 from the three months to June to 29.58 million in the three months to September. This is good news, but the bears point out that in September the growth in employment was slower than in previous months.

Unemployment improved. Last month the unemployment rate was down to 7.9 per cent, now it’s showing up as 7.8 per cent.

And finally there was average wages. In the three months to September, average wages rose by 1.8 per cent.

Many economists say that the UK will see a sustained recovery once wages start rising at a rate that is faster than inflation. It’s a curious assumption, when you consider that the same economists seem to think that the key for Greece and Spain etcetera is for wages to fall. In September, inflation – as measured by the RPI index – was 2.6 per cent so while it is true that average wages are increasing at a higher rate, they are still lagging behind inflation.

Given that inflation is not expected to return to target until the end of next year, it seems unlikely wages growth will outstrip inflation for a while yet.

Standard Chartered hits back

Did you get the phone call? No? Bad luck: that means you are not one of Standard and Chartered top shareholders.

If you were, then you probably found yourself whisked off to Beijing.

Shares in the bank have not done so well of late. Sure they have been up, but when you compare the share price growth seen at Standard Chartered with say HSBC and Citigroup you can be forgiven for thinking ‘that’s a bit lacklustre’.

But growth in profits have been far from lacklustre; in fact stellar may be a more appropriate word

So why have the shares been slow to rise?

Part of the problem is that the bank’s share price never did fall to the same extent of that of its rivals. So it had less scope for recovery. Secondly, it has lost its halo. You may recall, this was the bank that was receiving plaudits for how well behaved it was, while the others were being given naughty hats to wear. Then the revelation came that the bank was breaching Iranian sanctions. (It is still not clear how guilty the bank is here. It says the regulator is overzealous). Thirdly, the emerging markets have not been performing well.

But the bank reckons its shareholders have not understood its model, and not grasped why it is actually being rather clever, hence the whisking. The top twenty shareholders were subjected to three days of presentations in Beijing. It’s an attempt by the bank to set the record straight.

According to the ‘FT’, there is growing concern that the bank has too much exposure to stressed markets. Barclays has raised concerns about the level of bad debts suffered by the bank.

It’s a funny how things can change. Standard Chartered was the bank that could do no wrong, but now cynicism seems to be replacing exuberance.  But are the markets overdoing their bearishness?

Cisco shows we live in an economy of two halves

And no it’s not the two halves you usually hear about – rich and poor, developing and developed. Rather one half is technology, the other half is everything else.

Cisco, the company that is responsible for much of the internet’s backbone, is doing rather well.

Net income was up 18 per cent in its latest quarter, hitting $2.1 billion. Revenue was up 6 per cent.

But where is the growth coming from? Not China, where the company has been embroiled in controversy. Not in Europe, where sales are down 10 per cent. Not really in the Middle East, where sales were up a trivial 2 per cent. Maybe it did a bit better in Asia, where sales were up 7 per cent and that’s despite its Chinese problems.

Rather Cisco reckons the growth is coming from, and indeed is set to come from, the US

Its boss John Chambers was quoted in the ‘FT’ as saying: “If the improvement in US demand of the past six months continues into early next year, the stage could be set for a wider bounce in capital spending and, eventually, in new hiring.”

It sounds tad clichéd, but the US does have this ability to reinvent itself. And nothing may represent this reinvention better than the internet. Cisco’s unique selling point is perhaps that it provides the backbone to reinvention.

Companies in the news

Bull:       Questor took a look at Vodafone today, and liked what it saw. The share price has taken a battering over fears of the company’s exposure to indebted Europe. Another dark cloud looms over the possibly of a major tax hit in India. But the company’s global diversification, presence in growth markets, and growth in mobile internet swayed Questor to say “buy”.

Bull and bear:    Elsewhere was hold all the way. Tempus at the ‘Times’ had Capita and CRH as holds. Tempus thought the rate of contract flows at Capita in Q3 was impressive but fretted over the share price. As for CRH construction, fears over Europe and the US fiscal cliff led to the hold conclusion.

Back to Questor at the ‘Telegraph’, Cineworld was subjected to its analysis. The Olympics led to fewer viewings, but the film companies held their big releases back until after the greatest show on earth. Cineworld does well when the films on release are popular, and the pipeline of films is impressive indeed. The company is expanding too. But the share price is near its all-time high, hence the “hold” tag.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: Capita, Cineworld, Cisco results, CRH, House prices RICS, Inflation versus wages, Standard Chartered, UK employment, Vodafone

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