Derivatives point to UK housing slowdown in 2010

Derivatives point to UK housing slowdown in 2010

Monday, November 9, 2009 2:20 PM

* 5.5 pct house price growth seen over calendar 2009
* Economic uncertainty crimps projections for 2010-2011

By Sinead Cruise
LONDON, Nov 9 (Reuters) – UK housebuyers may still have a
chance to secure a bargain home between 2010 and 2011, with
annual house price growth seen at about half the 5.5 percent
expected by end-2009, indicative derivatives data shows.
Participants in Britain’s junior property derivatives sector
said the recovery of the supply starved residential market
remained on solid footing, but price rises were set to slow as
housebuilders upped construction in an effort to meet demand.
“Physical house prices in the UK have continued to increase
despite worries that unemployment, restrictive lending and an
increase in taxation would prevent recovery,” Peter Sceats, a
broker at Tradition Property told Reuters.
“Some traders are focusing heavily on the core fundamental
of supply and demand and believe the rate at which new homes are
being (and have been) built is severely insufficient for the
UK’s future housing needs,” he said.
Average UK house prices are seen rising by nearly 12 percent
over the next five years, the data shows, against September
projections of an 8.5 percent rise for the same period.
On Nov. 3, Halifax Building Society, one of the UK’s largest
mortgage providers, said house prices had risen 1.2 percent in
October, squeezing the annual decline to its smallest in
one-and-a-half years as higher demand and a lack of homes for
sale buoyed prices. [ID:nL3376075]
Last week, housebuilders Redrow and Taylor Wimpey
added to the rising tide of optimism in the UK housing
market, after reporting stabilising sales and shrinking
inventories. [ID:nL4449667]
“Despite Taylor Wimpey reporting strong results in a market
they described as significantly better than last year, the
property derivative market is still slightly cautious about 2010
and 2011,” said Michel Heller, a trader at CB Richard Ellis/GFI.
Notwithstanding this caution, Heller said derivative prices
are pointing to a brighter longer-term, with an average expected
house price rise of around 25 percent over the next 10 years.
Average UK house prices, as measured by the non-seasonally
adjusted Halifax House price index, stood at 165,430 pounds in
October, from a peak of 201,081 pounds in August 2007.
Below are expected annualised percentage changes in UK house
prices based on non-seasonally adjusted Halifax House Price
Index derivatives.
The young market provides investors with an opportunity to
adjust or hedge exposure to the UK housing market synthetically
– in a cheaper and more efficient way than buying or selling
bricks and mortar.
The table is based on indicative HPI swaps mid-price data
provided by interbank brokers Tradition Property, CB Richard
Ellis-GFI and Tullett Prebon and is made up of simple averages.

Date 1YR 2YR 5YR 10YR 20YR
09/11/09 5.5 2.83 2.37 2.47 3.63
22/09/09 1.3 1 1.7 2.1 3.5
10/08/09 -1 0.3 1.8 2.1 3.43
30/06/09 -7.5 -5.5 -1.37 0.9 2.63
18/05/09 -11.5 -9.3 -2.7 0.4 2.3
2/04/09 -18.7 -13.5 -4.3 -0.4 1.9
17/02/09 -20.3 -14.2 -5.1 -0.05 2
06/01/09 -19.7 -14.7 -5.5 0.15 2
11/09/08 -16.2 -11.2 -3.1 1.1 3
11/08/08 -15.5 -9.8 -3.0 1.0 2.9
11/07/08 -15.8 -10.5 -3.2 0.8 3.0
06/06/08 -13.2 -9.8 -3.0 0.1 2.2
06/05/08 -13.8 -9.1 -3.1 0.3 2.3
04/04/08 -8.3 -5.8 -2.0 0.5 2.4
14/02/08 -8.2 -5.7 -1.8 0.5 2.3
08/01/08 -9.0 -4.9 -1.7 0.4 2.6
18/12/07 -9.0 -4.8 -1.7 0.4 2.7
5/12/07 -9.7 -5.1 -1.4 0.5 2.7
29/11/07 -7.0 -3.8 -1.2 0.6 2.7
06/11/07 -2.5 -1.3 -0.9 0.8 2.8
20/9/07 -2.5 -1.0 0.2 1.2 2.5
1/9/07 -1.0 0.0 0.8 1.3 2.6
1/8/07 2.3 2.0 1.6 1.7 2.8
1/1/07 4.3 2.7 2.7 2.5 2.7

(Reporting by Sinead Cruise; Editing by Andrew Macdonald)
($1=.5960 Pound)
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Keywords: BRITAIN HOUSINGDERIVATIVES/