Today, Victoria Scholar, head of investment at Interactive Investor, takes the City A.M. notebook pen
The only thing being built is negative momentum
Rising interest rates, high inflation and the cost of living crisis are starting to take a serious toll on the UK housing market. Just this week, data from Rightmove pointed to a marked slowdown in house prices and buyer demand, echoing similar figures out recently from Nationwide and Halifax. According to Rightmove, asking prices fell by 1.9 per cent in August, the biggest monthly drop since 2018, with home sales down 15 per cent versus 2019 before the pandemic. The number of properties listed for sale on Rightmove slumped 10 per cent versus 2019.
During the pandemic, the housing market boomed thanks to the stamp duty holiday and as households sought to acquire greater square footage with more outdoor space further from city centres with extra rooms for at-home offices.
However, since the post-Covid revival in inflation and the aggressive stream of rate hikes from the Bank of England in response to tackle this problem, the housing market has been feeling the squeeze. Monetary tightening has made it considerably more expensive to borrow, plus many potential sellers are choosing not to list their properties at all, given the increased difficulty in achieving their desired selling prices.
This is having a knock-on effect on the rental market with many would-be buyers heading to the lettings market instead. But the surge in demand from tenants has pushed up the cost of renting to the highest level since comparable records began in 2016, rising 5.3 per cent in the year to July, according to the Office for National Statistics.
Falling house prices also has a negative wealth effect on homeowners, by reducing the value of what’s likely to be the most valuable asset they own, discouraging spending in the economy.
The dynamics in the housing market is weighing on housebuilders’ stocks. This week, Crest Nicholson cut its full-year profit outlook by almost a third to £50m. It highlighted worsening trading conditions and weakening transaction levels. And with elevated core inflation and record wage growth, there’s a growing likelihood that high interest rates are here to stay, prolonging the pain. Crest Nicholson’s negative update punished other stocks in the sector like Taylor Wimpey, Persimmon, Berkeley Gorup and Barratt Development ,which slumped to the bottom of the FTSE 100 yesterday.
Travel far and wide
Global travel is expected to grow sharply over the next decade. According to the World Travel & Tourism Council, the industry will be worth $15.5trn by 2033, or 11.6 per cent of the global economy, up over 50 per cent from $10trn in 2019. The report suggests travel and tourism will employ up to 430m people in 10 years, accounting for around one in every nine jobs globally. China’s travel economy is expected to overtake that of the United States, which is currently the biggest in the world.
Since Brexit there have been concerns about the City of London with companies opting to list in New York instead and with rival European cities hoping to overtake it. Despite this, the number of jobs in UK financial services has hit a record high. According to the ONS, positions in financial and insurance activities reached 1.235m in Q1, up 34,000 versus Q2 2022 and above the prior peak of 1.209m from 2008. Since the pandemic, jobs are higher by 119,000 versus the Q3 2020.
Goldman Sachs has cut its outlook on stocks in China for the second time in three months. It expects full-year earnings per share growth to hit 11 per cent for the MSCI China Index, down from its previous guidance for 14 per cent and its 12-month index target has been reduced from 70 to 67. Analysts point to its “ailing housing market and its potential contagion to the real and financial economies” as reasons behind their increase caution. This comes after several big banks, including JP Morgan and Barclays, cut their full-year China GDP forecasts.
This telling of Sackler drama sticks in the throat
Painkiller is a highly popular Netflix series about some of the origins of the opioid crisis in the United States. The partly fictionalised drama covers the rise of Purdue Pharma which manufactured and aggressively sold Oxycontin, an addictive painkiller, which turned into a billion-dollar drug and contributed to the surge in opioid use in America. The success of Purdue made the Sackler family, which founded and owned the business, into one of the richest families in the world at the expense of hundreds of thousands of lives. According to Barry Meier who wrote the best-selling book Painkiller which inspired the show, an estimated 250,000 Americans died from overdosing on prescription painkillers between 1999 and 2017.