With the property market up in the air and the green shoots of recovery potentially afoot in UK equities, we wrap up the week in the City.
Hot or not property
“Buy land,” the late great American essayist Mark Twain once said. “They aren’t making any more of it.”
Far be it for us to question the sage-like wisdom of the Adventures of Huckleberry Finn author, but, for London renters at least, that quotation is only partially true: new data found the number of rental homes in London was up 34 per cent year-on year.
The news will be welcomed by the capital’s tenants, who, since the pandemic came to an end, have been squeezed to within an inch of their life.
Demand has continued unabated while a combination of a lack of housebuilding and rising rates prompting some landlords to sell up.
But any tenants hoping that the rise in supply will translate into lower prices will, it looks, will have to press pause on any overdue celebrations. Bernham Reeves, the estate agent responsible for the research, said that the increase is “unlikely the balance the sales” when it comes to rental values.
Things were just as up in the air in the housing market proper. Bank of England data out on Wednesday, showed mortgage approvals picked up for the second consecutive month in March, from 61,300 to 60,500. Transactions and mortgage approvals, not always a strength of the UK housing market, are a sign that things are coming back to life after what has been an unusual couple of years for those with more than passing interest in the housing market.
Rates shooting up, as they did after Russia’s invasion of Ukraine and the Mini-Budget, is usually reflected with a parallel fall in house prices to ensure there is a functioning market.
And yet, sellers refused to budge on the price their house had been worth just a few months prior, and buyers couldn’t stomach that price with the higher mortgage rate, so the market engaged in a weird form of Mexican stand-off. These latest numbers could be a welcome sign that this weird market dance is now into its last song.
Except, rather than continuing to come down as expected as expected at the start of the year, mortgage rates have, instead begun to climb again, meaning we could be in for an illiquid house market encore.
UK equities – the contrarian take
The week looked, in most people’s eyes, set to be another sorry week for UK equities. The sorry taste of Darktrace’s departure and BHP’s bid for Anglo American the previous week lingered in the pallet like a salad with too much raw onion.
However, trends, as they say, always go in cycles. And there is growing – if still slightly unfashionable – sentiment in the Square Mile that UK equities might just be turning a corner. The argument in support of the index’s patriotic backers is threefold.
First is that of value, which broadly can be translated to: The performance of UK-listed firms has been so turgid and so stagnant that relative to their peers, they are now at such a discount that they have started to become tempting, not just for bidders but for investors, too.
Then there is the drum that star stockpicker Nick Train has been banging for a while. The Fundsmith founder argues that it might take a big departure – like that of Darktrace or even, perish the thought, Shell – to kick the UK equity market back into life, as people come alive to the value on show, and policymakers take seriously the difficulties it faces.
And finally, there’s solace in the technicals of the FTSE’s performance. Its ascent to an all-time high last week – while long overdue and, frankly, painful to watch at times – did happen, making headlines despite being something that indices should do fairly regularly. And in markets momentum breeds momentum.
If reader, that triumvirate of optimism amid the gloom fails to brighten up your long weekend, then I’m afraid there’s no hope – there’s no fun in being right if it involves being a spoilsport.
