31 Mar 2024
As I wrote the other day, markets have been remarkable for their calmness. In the quarter the FTSE 100 rose by 2.8%, the All Share by 2.5% and the FTSE 250 by 1%, The slight relative underperformance of the 250 typically indicates caution over domestic profit margins and there are some obvious areas of concern. Not least among these are the housebuilders who are delaying completions as they wait for better market conditions. Either interest rates will have to fall or, more likely, people will adjust to the new but old normal world in which positive real interest rates are to be expected.
On 28 February TaylorWimpey announced that 2023 completions were down 23% and on 12 March Persimmon reported that its completions for last year were minus 33%. As usual, nobody in the political or press mainstream appears to notice what is going on and the mantra that “we” need to build more homes pounds away relentlessly.
UK housebuilders were burned fifteen years ago and their memories are, creditably, long enough to retain the near-death experience of the last time the supporting chorus was urging them to “build, build, build”. On 27 March the Bank of England warned about the rising danger of bad commercial property loans and also noted the trend of private property buyers to choose longer dated loans (where the aggregate interest owed will likely be higher but the individual monthly payments will be lower).
As for interest rates themselves, yields on government bonds rose over the quarter: ten year gilts from 3.6% to 3.98%, US Treasuries from 4.0% to 4.21% and German Bunds from 2.05% to 2.29%.
On the one hand this implies that economic performance is a little better than expected, which is modestly good news: on the other, it tells us that we cannot assume that rates that went up will just go down again.