Return of investors will signal recovery.
Posted on August 24th 2009
There certainly seems to be plenty of good news on the World economy over the last few weeks. Germany, France, Israel and Japan all officially coming out of recession. Positive signs in the US that the housing market seems to be turning a corner is also very encouraging. On a domestic front Barratt the house builder is looking to raise £500m in order to buy land that it believes is at bargain basement prices. What this news means is unclear but there is no doubt that as countries come out of recession and confidence returns they will consume more which eventually will have a knock on effect across the globe. Barratt’s move will surely be followed by its competitors who will not want to allow them to get a competitive advantage.
Once the house builders get going again it will generate thousands of much needed jobs in the construction industry. The number of house sales and the resulting number of new mortgage approvals is also on the way up, albeit from a low base, so there is definite signs that at the very least we appear to be bottoming out. There is still a risk of a double dip especially in house price data but most commentators believe that even if this does happen it will be relatively minor.
I believe it will be years before the banks are lending at decent levels again and even then they will not be able to plug the gap in demand for credit by themselves. Their balance sheets will be substantially smaller then before which will limit the amount of credit they can create and capital adequacy rules will further contain their appetites. What we are in desperate need of is a return of investor confidence that allows them to start bringing the necessary liquidity back to the market. When we see private and institutional investors willing to invest in the UK housing market we will have truly turned a corner and we can consign 08/09 to the history books.
