Being so close and so dependent on the banks and lending institutions, was there a stock market sector worse hit during the 18 month 2007-2009 credit crunch than residential property? Very doubtful and although such a view has to remain largely subjective, the evidence is compelling with big players Berkeley Group Hldgs, Bellway, Bovis Homes Group, Barratt Developments Plc, Persimmon and Hentry Boot all suffering lost, or more accurately ‘no’ sales, horrendous balance sheet damage from write downs and defaults, non renewal / calling in of debt and consequent near death experiences.
However, the recovery to rude financial health of these same companies during the period June to August 2009 has been equally staggering and has confounded the early 2009 brokers forecasts, economists' dire predictions and financial journalists doom-laden copy. One such example of this being Barratt Developments Plc which were a SELL recommendation at 71p December 2008, another SELL at 150p as recently as July 2009 and now trade at 278p (www.investorschronicle.co.uk) and this recovery was missed by nearly all of the brokers' forecasts.
WHAT HAPPENED
Certain government initiatives listed below, some of which were introduced nine/twelve months ago, are now having a very beneficial effect on the sector and the wider economy. By their nature, such measures take time to have an effect and the general media, perhaps for their own narrow reasons, and scores of economists completely failed to read the longer term trends.
In January 2009, economists (www.ft.com) were forecasting that house prices would fall by 20% in 2009 and that prices of new build homes would fall by up to 45%, citing the ‘seized up mortgage market’ – a problem that had already been addressed. All this has turned out to be utter nonsense with average house prices during August 2009 now confirmed as near identical with December 2008 and rising again (www.halifax.co.uk). The reasons for the recovery are better affordability, low levels of inventory for sale and low interest rates, most of which should have been apparent to the media and economists back in January 2009.
Interest Rates
In October 2008, the Bank of England base rate was 4.5% p.a. This was reduced to 2.0% in December 2008, 1.5% January 2009 and finally down to its present level 0.5% in March 2009. However this time, it has also of course coincided…
