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Friday, 6 July 2018

Changing of the guard

UK housing ticking along

Nationwide reported that the UK housing market is...well, I've screen-grabbed it from my Twitter feed below.

Nationwide is but one data provider, and its index is based on a sample of transactions.

Plus there has evidently been an odd seasonality effect, hence the peculiarly British 3m/YoY basis of reporting. 

But the bigger picture is that with borrowers recognising an end to the trend of ever-cheaper money, nationally prices are now only a couple of per cent higher year-on-year. 

For half a decade ultra-low rates have encouraged household borrowing - which was after all partly the point of easier policy - but the strong uptrend for the housing market seems to have run out of puff for the time being. 

Despite the ongoing uncertainty surrounding Brexit and what that does or doesn't mean, jobs growth has remained strong, the employment rate is at the joint highest rate since 1971, and the unemployment rate is at the equal lowest rate since 1975. 

But mortgage approvals have now softened. 

What happens next will be interesting to watch, with wages growth solid enough, but far from spectacular. 

Construction employment set to slow

Jetting back Down Under now, to round off the week. 

I'm a natural born optimist - especially for the long term - can't help that, sorry.

And it's difficult to be too pessimistic about the Australian economy with the jobs vacancy rate tracking at the highest level we've ever seen

If historic trends persist, we should at least in theory now see the unemployment rate fall towards 5 per cent, and quite possibly even lower.

To my mind, there's one significant headwind facing down that equation, however, being the winding down of construction employment.

This is largely just a numbers game.

Construction presently employs a very significant chunk of the workforce - the biggest share in about a century - but that could/should change as housing construction slows.

AIG's Performance of Construction Index (PCI) now shows apartment construction contracting both on a monthly and a 12-month average basis, while the construction index for houses has suddenly dropped from 58.6 to 50.2 (this remains a reading denoting an expansion, if only just). 

Source: AIG

The employment sub-index also declined slightly from May. 

This mirrors what was reported by the ABS on lower house building approvals, and slower new home sales as reported by the Housing Industry Association (HIA).

With investors finding access to credit harder to come by and prices declining in some markets, then dwelling construction seems likely to slow some way from here. 

In short, expect fewer cranes and new apartment blocks on the skyline next year.