In the Nationwide April report, which showed house prices rose by a surprising 11% per cent last month (taking the annual rate of growth to 5.2 per cent%), Robert Gardner, Nationwide's Chief Economist, said the following:
"The strength of the economy and relatively subdued pace of activity in the housing market remains something of an anomaly."
As sad as it may sound, this sentence leapt out at me. Now I'm no macro-economist, but as someone who follows the property market fairly closely, I do wonder if this is really the case?
Do a strong economy and subdued pace of activity really constitute an anomaly? On paper they may well appear to, but in practice the property market is rarely that simple.
For me, this understanding of the market — strong economy = strong activity levels within the property market — is too black and white and overlooks the crucial impact of sentiment.
In other words, if people do not feel confident or prefer to sit tight, for whatever reason, then activity and transaction levels will stagnate even if an economy is doing OK.
My own take on this is that, while mortgages are cheap, employment high and the cost of living low — and the economy growing (if not as much as we had expected during the first quarter of the year) — people are far more cautious than they were in the past. There is an element of conservatism in the market that perhaps wasn't there before 2008.
It may be that, after the apocalyptic years of 2008 and 2009, the UK public has become more sensitive to a market that is starting to run out of control — and therefore it has put on the brakes.
Sentiment, of course, is one of those intangibles that you can never really quantify, prove or disprove. All we do know is that transaction levels in the property market are not what you would expect them to be in cold economic terms.
In that sense, it seems that intangibles - the unknown drivers of the property market — have a far more tangible impact on the market than anything else. Which makes truly understanding the property market a long shot at best.
Jonathan Samuels of Dragonfly Property Finance
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