Supplement 20 Oct 24 - Clowns to the left of me
“Clowns to the left of me, Jokers to the right, Here I am stuck in the middle with you” - Song by Stealers Wheel?
Before we get started, this week I wanted to just outline the Boardroom Club with Rod Turner that I’ve been running alongside Rod for 4 and a half years now.?
The Boardroom Club is a group set up to help take property businesses to the next level. Rod and I often get asked about 1-2-1 mentoring and it isn’t something we provide or have the appetite to provide in the near future. However, there is a 1-2-1 element to the Club and it includes the following:
If you are interesting in joining - drop Rod or myself a message on LinkedIn:
So - the deals kept rolling in this week as the property traders and professionals I speak to on a daily basis kept commenting that they hadn’t seen it this busy for many a long year - with this many realistic vendors. It’s hard to keep up. Very enjoyable stuff. Ever more properties secured as budget fears reach fever pitch, before someone let the cat out of the bag that I’ve mentioned a few times in recent weeks and months - CGT isn’t really going up much, it seems now. Not moving on property, we are “leak-assured”. The best bet would be the “special” (or discriminatory) rate on property will be the new rate on CGT for next tax year. 18% lower, 24% higher, moving from 10% and 20% on shares.
The speculation in the FT and other worthwhile periodicals is also that BADR - Business Asset Disposal Relief - the old money Entrepreneurs’ relief - is being got rid of. 10% on the first ￡1m, a lifetime allowance. Likely to be a very limited incentive for startups anyway, so I guess RR feels as though they are just giving money away - and being honest, she’s probably right.
To be honest - the panickers aren’t listening, and still looking to cash up because they just don’t trust a Labour chancellor just yet. Will they AFTER October 30th? Who knows.
The primary challenge still remains in filtering through the vast number of opportunities that are out there this week/at the moment - this is the skill that pays the bills. If it isn’t urgent, it’s shelved until October 31st. There will then of course be a new swathe of activity, probably mostly limited-company focused, before April 5th (if my speculation on the date of change is correct - there are multiple choices actually, including April 5th 2026 - which would be quite canny).?
Nice problems to have, let’s face it. It’s an absolutely amazing real-time example of living that Warren Buffett phrase I used a few weeks back. Be fearful when others are greedy and be greedy ONLY when others are fearful.?
For the deep dive I want to get across a few of the real-time reports that I don’t cover with regularity - just to check in on exactly what the budget is doing to the rest of the economy. I’ve got a couple of tax thoughts as well, regarding what might change - not a huge amount, because I don’t see it as something worth spending too much time worrying about.?
Over to the staple diet, then.
Chris Watkin asked himself that question once again - What is currently happening in the UK Property Market?
A reminder. Chris is a stats guru who analyses the UK portal data which is aggregated for him by TwentyEA. It is a much better and more in depth writeup than Rightmove or Zoopla provide with their own data and goes into some proper detail - and can be invaluable as an “early warning” of a whole variety of things that might (and will) go on in the market in the future. Real-time trumps the snail's pace at which bigger data, and especially Government, moves.
Listings remain very healthy (too healthy if you are trying to sell, to be honest). It certainly is keeping market pricing honest though. Listings are still 7.6% higher than pre-pandemic levels, but luckily gross sales are 7.8% higher than pre-pandemic levels!
September’s SSTC figures have also been analysed by Chris now as well. September has been called a bumper month by both Nationwide and Halifax - in fact, Chris sees SSTC prices as about equivalent to July’s (before an inevitable, very small, dip in August). This plays out at the land registry in about 5 months’ time - but it indicates stable house prices for the moment (which makes sense as rates are just holding up, rather than really progressing downwards - as you’ll know if you read regularly, the pressure on the gilt yields has been upwards in the past few weeks, not downwards).
The fall-throughs are sticking at about 1 in 4 sales at the moment, which is very much in line with the 7-year average. Reductions are also holding up - well above the long term average, 14% was reduced in September versus the long-term average of 10.6%. This is symptomatic of so many listings, of course. You need to stand out to sell, and you need to get to a realistic sales price to sell.
Total properties SSTC so far in 2024 exceeds any pre-pandemic year from 2017-19, and is under 50k sales behind 2022 now - with us knowing that 2022’s figures REALLY dropped off from here (because of……oh, it’s every week isn’t it).?
Resi stock on the market reached 724,312 by the end of September - the biggest by some way, at what’s usually close to the peak of the stock for each year. In the “lean stock” years of 2021 and 2022, this number was 438,005 and 506,614 respectively; the more stable market numbers vary between about 600k and just under 700k, so there is not an absolute glut on the market, but it is an 8+ year high and so needs to be recognised as such.
Pipelines (sale agreed stock) look very healthy (although of course some of this is because they are slower than they used to be) at 502,994 around the country - compared to 375k or thereabouts in each one of 2017-18-19. The metric “Pipeline/total stock” tells us quite a bit about market heat, if I put that together (so this is stock that is sale agreed, to be clear, divided by (total stock sale agreed plus total stock on the market yet to be agreed)):
Sept 2017: 38.2
Sept 2018: 35.8
Sept 2019: 36.2
Sept 2020: 41.4
Sept 2021: 55.7
Sept 2022: 50.5
Sept 2023: 38.3
Sept 2024: 40.1
I feel this should have a name like the “Lawrence Thermometer” but that sounds rubbish, so if any keen readers or listeners fancy making a suggestion, please leave me a comment! It was looking quite close to body temperature for a while but the pandemic sure did bring along a heavy case of the ‘flu!
The higher the number, the hotter the temperature in the market by implication. Interesting to see though on this measure that Sept 2023 looked hotter than Sept 2019, even though prices were wobbling a little (2019 was pretty flat, too, though).?
Enough statistical innovation - we will press on with the macro, but safe to say - if you are looking to sell, this market looks OK, but I’d get anything on PRONTO, because even though November looks like it might be OK this year, we all know December is a waste of time for selling (and a fabulous, fabulous month to buy in on the other side of that coin).?
Macro time then - that meaty third week of the month. Unemployment and the Labour Market. Inflation (you know we aren’t avoiding that one). Private Rent and House Prices report by the ONS has to be covered. That leaves room only for my pet obsession, the gilts and swaps yields of the 5-year duration.?
Unemployment - a surprise downside print of 4%, where the consensus was 4.1% (to remain the same). The consensus isn’t worth a lot in the Labour Market figures, because the commentators seem to just guess “same as last month” every time, unless something major has happened. Generally speaking that isn’t a bad guess, though.?
As you know, that’s normally where the commentary stops in the “economics entertainment industry” media. We go a bit further.
When I was at the Property Investor Show appearing on an expert panel a couple of weeks back (they must have been short of experts, eh?) that was chaired by Russell Quirk, property commentator extraordinaire, I pedantically corrected him when he said unemployment was 4% and thus employment was 96%. This wasn’t just to be a pain (that’s a bonus), but because we have a significant inactivity problem in the UK post-covid compared to where we were. Internationally we actually stack up OK, but nonetheless there’s no reason not to be striving to get back to where we were.
Employment is actually now at 75% which leaves 21% for inactivity. You’d think. However - I’ve pointed this out before - unemployment doesn’t have an upper age cap on it, so if you are seeking a job at 65+, you are still classed as unemployed. Employment - and inactivity - is capped at pre-65th birthday, so inactivity is ACTUALLY 21.8%. This is down 0.3% on the quarter - good news - but still adrift of our low pre-pandemic, which should be our target at the very least. Inactivity is still up 130 basis points or 1.3% higher in nominal terms than it was in Dec 2019-Feb 2020, when it was 20.5%
The employment rate is up 0.6% quarter on quarter, which is a big win and this cements what I was saying some months back about it looking like we’d found the bottom in our unemployment figures and weren’t going to go back above 4.5% unemployment. Good news.
Vacancies are also always interesting, and the drop to 841k vacancies in September was the 27th consecutive drop but STILL remains above pre-covid levels.?
Earnings also fall out of this data set. 4.9% was the “real” figure - not including bonuses - so under the psychologically important 5%, but still high enough to mean more price rises next year to keep up with wage demands.?
The headline figure was 3.8% (including bonus) - still distorted because of negotiated bonuses paid to public sector workers as “one-offs” for pandemic service over the summer months in 2023. The figure used for the pensions triple lock for next year is 4% - matching neither of these figures - and don’t ask me why. The triple lock is laughable, ridiculous, and unsustainable - but politically VERY difficult to get rid of.
Annual pay growth adjusted by CPIH (inflation including housing costs) was 1.9% in real terms. A really healthy number when it sits around the 2% level.?
31k working days were lost thanks to labour disputes, which are still ongoing and will be ongoing as the unions try their luck with their well-funded allies in power. Having seen what looked like a rollover after a long, arduous and costly battle with the previous mob, there will be upset in this camp next year, I predict.
Onto inflation then, the mastermind specialist subject of Propenomix. The 1.7% caught me by surprise, this week, on CPI - I thought we would just tuck under 2% and hit 1.9% because of the base effects of September 2023 dropping out, plus the drop in the oil price. There was a little more than expected, on the downside, which is nice. One of the biggest, if not the biggest, downside misses for years.?
There’s that HUGE psychology of course of CPI printing below 2%, and not only did it beat 2% it beat it by some way. This prompted (of course) a million posts about cutting interest rates, but also many claims that “inflation is over”. I think - rather than letting one month get us carried away - we should take a closer look, don’t you?
Oil - as an aside - was only down about 7% in September, in $ prices. However, Sterling also strengthened against the dollar so we had a double bubble on “petrodollar” products. (Sterling opened the month getting $1.313 to the ￡, and closed at $1.34). Both of those have unwound (oil a bit, Sterling a lot - now back down to $1.303) so this has the indications of a somewhat “lucky” month.
So. CPI at 1.7%. Fantastic. CPIH (including housing) - 2.6%, a lot higher, but still down from the 3.1% print the month before, and that’s something to be grateful for. The month-to-months were also very flat, which is useful.?
Now Core CPIH was still up 4% (down from 4.3% in August), and CPIH services still ploughed on at 5.6% (still far, far too high). Core CPI was up 3.2% and again was well under consensus which predicted 3.4%. RPI also really dropped - for those relying on it for leases - to 2.7% down from 3.5%, so that’s welcome respite for the tenants I am sure.
I like to keep abreast of OOH - the owner-occupier housing cost inflation rate. The best proxy for the cost of keeping a roof over our heads. We STILL don’t seem to have hit the top here with that index printing SEVEN POINT TWO percent this month. I have to shout, because NO-ONE talks about this metric, and they really should. The pressure on households at the base level of the pyramid in Maslow’s hierarchy of needs is significant, and ongoing, and yet to peak it seems.?
It’s by far the biggest contributor in percentage terms, and also it takes a good slice of a household’s disposable income of course.?
So - and of course you will decide for yourselves - is inflation REALLY licked just now because of a “perfect storm” of a month as far as oil prices and sterling go? Or - with a 10% rise in energy prices from 1st October having already kicked in, a weaker pound and an oil price possibly on the up again - will we reverse a fair bit of that in October’s figures? I think we might…….
So - staying with the ONS, we move on to the Private Rent and House Prices report. This is September’s rental market and August’s sales market, just to confuse us all further.?
Rents stayed at an 8.4% increase year on year for September, same as August’s number. Remember - the ONS uses a sample of 500k+ rents in order to track this, NOT just tracking what new rentals are going up on the portals at - so this data is much more accurate. The high was in March at 9.2%.
We now hit an average rent in England of ￡1,336. Northern Ireland led the pack on percentage increases though, with rents up 9.5% (that’s to July, rather than September).?
London rent inflation was at 9.8%, and rent inflation was “lowest” in the South West and also Yorkshire/Humber (still at 6.3% year-on-year).
The ONS based on land registry transactions sees prices up 2.8% year-on-year (to August) - up from 1.8% from last month’s figure, so a big jump. The actual month-on-month figure was a massive 1.5%. That broader 2.8% figure breaks back to 2.3% England, 3.5% Wales, and 5.4% Scotland. This is the 6th consecutive month with an increase after 8 consecutive months with decreases.
The North West is still winning on prices, and London and the South East have woken up a bit as well. The Midlands remain around the middle, with the South West (and the East) lagging. When it comes to rents, the Midlands are just above average, with London and the North West leading the charge, but things are quite clustered and are between “a lot” and “an awful lot” in percentage terms. I’ve used the regional breakdown as this week’s image because it gives you a really good visual of where rent might be overpriced and not have that much affordability headroom any more.
I’ve said a number of times recently but AFFORDABILITY IS THE ONLY FACTOR THAT WILL KEEP A LID ON RENTS. In a market like this, anyway.
We round off the macro, as always, with the yields. We had a “down week” which is what you would expect when you miss inflation consensus by 0.2% to the downside. The market opened at 4.077% and was happily testing 4.1% and above before that gap down on Wednesday morning which was a 0.1% drop overnight. The week closed at 3.921%, below that psychological threshold but still plenty expensive enough, in my view.
The impact on the base rate - almost certain now that there will be a 0.25% cut at the start of November’s meeting. There is speculation about 0.5%, and also a back-to-back cut in December - I still don’t agree with either of those as the likeliest outcomes. Does this mean a guaranteed drop in the bond yields of the same amount? Absolutely not - but still I would expect it to move downwards 0.1-0.15% in that week (a couple of weeks’ time)
Thursday’s 5-year gilt close was 3.959% and the swap closed at 3.669% still preserving this massive 0.3% discount. Target mortgage pricing 5.7% with investment grade yields at 8.14%+ on buy to let properties.
Deep Dive business then, in that case. Firstly - a shoutout to a few of the reports I read but don’t mention much in the Supplement. The IPA Bellwether report - regarding marketing. (The Institute of Practitioners in Advertising, if you were wondering. No beer involved, craft or otherwise). Guess what….
Total budgets have failed to grow for the first time in 14 quarters. The blame is with…..the budget! Video is still expanding though. Industry-wide sentiment is eroding with downbeat financial prospects, when we look company-specific.
Nothing we didn’t already know, but the reason it is called the Bellwether report is because of its ability to spot recessions coming - because, you might be familiar with the phrase, “marketing is the first thing to go”.?
The net balance in Q2 on spends was +15.9% - moving to 0.0% in Q3 (average over the past 13 quarters was +8.8%). PR and events were still growing as they become more of a battleground, it seems. The sentiment in the industry is the worst since the closing quarter of 2022 when (oh, it’s just every time, isn’t it!).
The thoughts from the commentators is that this is a temporary trend not a permanent one, as it is just more budget hesitancy.?
Perhaps the Natwest Regional Growth Tracker - another useful publication - will tell a different story? Oh no. No it won’t. “Autumn Budget Dominates Outlook”.
What did we learn then? Northern Ireland is still roaring forward with its post-Brexit strategic advantages. Wales is contracting (on a business activity). The print though - as a whole - similar to the way the PMIs work - was 52.6 for the UK. More tales of stability but budget fears.
Finally on the report roundup - the REC/KPMG report on jobs. A more real-time (and more trustworthy, frankly) snapshot than the ONS Labour market survey. The ONS figures are OK given the lag, but do tend to change fairly significantly as more data comes in. This works better as an early-warning system.
The report tells a tale of a continually softening labour market. Lowest increase in permanent salaries since February 2021. Rises in candidate availability. However from the recruiter perspective, woes as companies permanent staff appointments continue to decline.
The contraction in vacancies was the steepest since March. Surprise surprise though: “The slowing of hiring activity is to be expected as businesses apply the brakes on recruitment ahead of the budget, and wait for clarity on future taxation, business and economic policy”.?
The change in employment laws also has businesses really worried. “This is a sign of a job market waiting for a signal” - very well put, I thought.
Perhaps the (incredibly badly timed, do better next year folks) International Investment Summit helped? We had promises to reduce red tape (alongside a change and increase in workers’ rights - go figure). ￡63bn of announcements (up from ￡28bn last time out for the other guys) - points scored.
￡20bn from Macquarie (the Australian Group) is all about electric vehicle charging. I know many will struggle to get excited about that as they consider range anxiety, the real environmental impact, and the reduced incentives to drive EVs over petrol cars, although the second hand ones are now trading cheap enough, happily. You’ll recognise Macquarie, perhaps, from such successes as “Thames Water” when they lifted many billions, quite skilfully, asset-stripping, debt-fireballing and not investing in it, but made a few quid.
The project also includes offshore wind (fine when it works), battery storage (needed for volatile generation methods), better digital infrastructure (can’t be bad), some new home developments in Edinburgh and Birmingham (watch this space), and supporting the first UK reservoir in 30 years.
There was also a breakdown of the Government’s industrial strategy green paper - I’ve not had time to go through it yet, and am yet to be convinced it will add value to the majority reading and listening - I’ll report back on that one.?
There’s still plenty of well-meaning but badly misguided idiots protesting about future nuclear power plants, which is exceedingly wrong-headed and a 40+ year mistake that needs reversing FAST.?
10% of the ￡63bn was about Data Centres - and there are some big projects around, plenty of construction to be done, and some ongoing jobs on the back of them. I thought that was all pretty heartening to see, although the energy requirements are a concern for locals (genuinely so - these are hungry, hungry beasts).?
￡1.1bn into a Stansted expansion which is long overdue. Here are the four principles laid out by the business secretary:
1 - I could believe that. 2 - what will it actually MEAN though, because there’s a problem on the EU front there that you might have noticed. 3 - really, because it looks like employment is getting more expensive including extra national insurance? 4 - easy to say, difficult to do. Good luck there.?
Most of the rest of the ￡60bn was frankly recycled announcements (Amazon are investing ￡8bn but that was announced last month). That always happens in these scenarios though - nothing different from any other government. Overall it felt as if the biggest players in the world were at the table to do business but did they get what they wanted and needed? We will find out. There was also a leak via LBC that HS2 WOULD get to Euston and WOULD also continue to Crewe - but we await anything official on that front. Post-budget you’d imagine, and could still be scrapped.
The noises that come out of anywhere near 11 Downing Street suggest that there are so many options, that keep getting truncated, that Rachel Reeves has been considering. Couldn’t really do what she wanted on pensions, because it would hurt the public sector. CGT LOOKS set to remain for property and increase on share sales and all other capital gains - perhaps to the same “special” property rate as discussed.?
Will the pre-election promises be broken already? I really don’t think so. As a reminder, the ridiculous promise was no rise in Income Tax, VAT, NI for workers, or Corporation Tax. About 80% of the tax take, then. Genius.
There’s been a lot of speculation about land tax reform - council tax, or more radical solutions. I don’t see radical coming here, at this time. Could be wrong - everyone still remembers the Poll Tax riots and the end of Margaret Thatcher too clearly.?
The likely routes look - at this time - to be - employers NI up (earns ￡8.5bn per % increase - massive). Changing inheritance tax, including reliefs on certain things such as investing in shares on the struggling AIM market, which can cut your “ticking clock” from 7 years for full relief down to just 2. Business asset disposal relief might well go to raise ￡1.5bn. Extra council tax bands (which really won’t be controversial at all) could raise ￡3bn-ish. Raise inheritance tax on trusts is worth half a billion and feels quite “Labour”. Stamp duty COULD be raised on second home purchases more in line with Wales (4%) and Scotland (6%) - I wouldn’t think it would go above 4% but there has been precisely zero mention of this, but I don’t know why. I am half expecting it!
Extending the fiscal drag looks like a complete banker. Reeves could raise another ￡7bn here - in theory - simply by freezing the income tax thresholds (and other tax thresholds) beyond the end of the 2027-28 tax year which Rishi Sunak had already taken advantage of. As inflation calms this will do less, but still ￡7bn of paper money will work very nicely for that black hole.?
There’s also a lot of speculation that has kicked back off around the ￡19bn of cuts that were already baked in. There’s been leaks around cuts to the benefits system worth billions - which are badly needed on non-means tested benefits. There’s chat of austerity - because that size of cut would be right up there with George Osborne’s most swingeing.?
There’s going to have to be some serious incongruence - as there already appears to be - between the environment for growth and just doing a better job than the last lot.?
What I do know is that this is the best environment for buying investment property I’ve seen for many years. I hope you are using it to your full advantage, and we might get an extension which will be less “fever pitch” but still look like disposal depending on what clues RR leaves in her speech for future years.?
Before I call it for this week, tickets for the next Property Business Workshop are OUT - Thursday January 16th 2025 (Yikes), with some great subject matter - planning, efficiencies, and also financial accounting and bookkeeping - not “how to use Xero” but how to ensure reporting is SET UP correctly and how to monitor it on an effective, ongoing, monthly basis.
SUPER Early Bird tickets are available with a 25%+ face value discount on them - once they are gone they are gone, Rod and I hope to see you there. Buy one here: https://bit.ly/pbwfive
There’s only one way to deal with all of this ongoing noise and excitement - Keep Calm, ALWAYS read or listen to the Supplement, and Carry On!
As always Adam, very insightful narrative.
Turning organizational challenges into thriving work environments with sustainable HR solutions | HR Transformation Specialist | HR Consultant | Ex-GAP | Ex-Cipla | Ex-Schindler
1 个月It’s become agenda driven by the politics without realizing the impact on their economy. Insightful read, Adam Lawrence
Property and Investment. Property specialist with expertise in Land & Site Acquisition, Project consultancy, development and investment. Start up Seed investor.
1 个月Insightful as always Adam Lawrence
Launching startups?? without breaking their Piggy Bank. With SaaS, GenAI & fractional CTO services clients save up to 69% on development costs & secure $2.3M to $15.5M? within 1 year of funding through product consulting
1 个月This roundup looks like a must-read for anyone trying to stay ahead in the property and macroeconomic game! From labor market insights to the ever-present inflation debate, it’s clear there are some big topics on the table. Adam Lawrence
4x Founder | Generalist | Goal - Inspire 1M everyday people to start their biz | Always building… having the most fun.
1 个月I feel like we need more agenda-free insights these days.