Early last month, Ben James and his girlfriend decided to put their
two-bedroom flat in south London up for sale, despite all the dire news
about collapsing house prices. They weren’t expecting what happened next.
Within five days of the property going on the market for £225,000, they had a
buyer at the asking price. Contracts have been exchanged and they are set to
complete in two weeks. For all the stories of property losing the gains of
recent years, they stand to make a profit of £70,000 on the flat, which they
bought in 2004.
“We were surprised at how easy it all was, particularly because it’s much
harder to get a mortgage on an ex-council property,” said James. “Obviously,
we could have got more if we had sold before the downturn, but we are very
happy with what we’ve got, though we did make some improvements to the flat.
We will be in a good position to buy our next property with no onward chain.”
Even if James struck lucky, there are other tales of life returning to the
property market amid the gloom of the recession. Two weeks ago, a property
in Fulham, west London, was put on the market by Savills for £795,000 and
attracted 22 viewers. In the ensuing bidding battle, it sold for £900,000.
Nor are such - whisper it softly - green shoots restricted to London. Gary
Marples, manager of Hamptons International in Guildford, Surrey, said:
“Buyers and sellers have adjusted to the new conditions. People have come
back into the market. We are seeing competitive bids again for the first
time in 12 months.”
Contrary to some views, not all business is contracting, despite the crippling
credit crunch and rising bankruptcies. Among the luckier entrepreneurs is
Tony Stone, founder of a company called Champagne Warehouse, who is seeing
business increase in the recession as drinkers switch from costly famous
labels to his less well known quality brands.
“Our success is built on a combination of the growing willingness of the
consumer to look beyond the brand names, and the recession, which has forced
them to look for cheaper options. We are getting a high level of repeat
business.”
Nobody would deny that the recession remains severe, and that thousands of
people are losing their jobs. Figures yesterday show that unemployment in
the US has risen to 8.5%. Nobody would deny that 2009 will be tough – one
insolvency firm forecasts 35,000 British firms could go under.
But after 18 months of turmoil, meltdown and massive rescues, might there be
some cause for hope? As the heads of the world’s 20 leading economies met in
London last week, optimism born of unprecedented international cooperation
was in the air. “This is the day the world came together to fight recession,
not with words but with a plan for economic recovery and reform,” declared
Gordon Brown.
In public, the prime minister revelled in the summit’s success and his role as
“chancellor to the world”; in private, after leaders dispersed, he was more
restrained. He shared a glass of wine with Kevin Rudd, the Australian
premier, then spent the rest of the evening playing with his son before
going to bed early. He knows better than to again make any foolish claims
about saving the world.
It was left to Barack Obama, the president on whom so many dreams rest, to
articulate what many were wondering. As the summit agreed a $1.1 trillion
boost, aimed mainly at strengthening the International Monetary Fund and
reviving world trade, Obama predicted that the deal would mark “a turning
point in our pursuit of global economic recovery”.
AT the nadir in November, UK mortgage approvals - firm offers of loans to
applicants - were down by more than 80% from their peak in autumn 2006.
House prices, according to Halifax and Nationwide measures, have dropped by
about a fifth.
However, a survey by the Bank of England last week suggested that the supply
of credit to both home-buyers and businesses is beginning to improve and
that the increase in interest among potential buyers is being converted into
genuine purchases.
After the government has thrown billions into bailing out the banks - a plan
criticised by opposition parties for its ineffectiveness - lending finally
appears to be beginning to flow into the economy.
Official figures showed that the number of mortgage approvals rose to just
under 38,000 last month. That is still a far cry from the monthly figures of
well over 100,000 regularly recorded during the boom years, but it is up by
19% on the previous month, and is 39% higher than the November low.
Ben Broadbent, an economist at Goldman Sachs, said a recovery in
housing-market activity would have wider economic consequences. When people
start buying and selling houses, spending on everything - from new fridges
and kitchens to solicitors’ and estate agents’ fees - goes up.
“There are powerful effects from any recovery to all the activity linked to
the housing market,” he said. “All of these things had fallen to
unsustain-ably low levels. In the end, people have to move. Rates of
residential development - new housebuilding - had dropped to levels which
meant we would run out in four or five years.”
So a recovery in housing activity was overdue, but it is unclear what that
means for prices. According to the Nationwide building society, prices rose
by 0.9% last month – the first increase for 16 months. On the other hand,
the Halifax reported a drop of 1.9% during the month. Such discrepancies are
not unusual and they make it hard to judge what is genuinely happening.
Experts at both the Nationwide and Halifax agree that it is too early to
expect house prices to recover on a sustained basis, and that lending and
confidence need to improve a lot more.
However, the ratio of house prices to average earnings has now fallen to 4.34,
says the Halifax, which is close to the long-run average of 4, and well down
from its peak of 5.84 in summer 2007. This should add stability to the
market.
“There are a few positive hints,” said Martin Ellis, housing economist at
Halifax. “If you’re feeling secure in your job, you’re in a good position to
take advantage of the fall in prices, and these very low interest rates.”
Whether enough people remain in good jobs to do so depends on what happens in
the wider economy. In February, unemployment in Britain rose by a record
138,000, and some fear a vicious downward spiral will develop, with
households cutting their spending in response to concerns about redundancy,
which in turn leads to further cutbacks.
However, history tells us that the economy can recover even as unemployment is
rising. In the 1980s, the recovery from recession began in 1981, five years
before the peak in unemployment. In the early 1990s, the economy started
growing in the spring of 1992 - nine months before the jobless total stopped
rising.
Better economic news is not confined to Britain. In China, the official
purchasing manager’s index - a measure of what businesses buy from other
businesses - turned positive again last month. Even the troubled US economy
has some positive signs. An indicator of activity in America’s factories,
the Institute of Supply Management’s manufacturing index, has recorded its
fourth successive monthly improvement. Consumer confidence edged higher last
month and car sales in March were 8% above February’s levels.
With the roots of the global financial crisis in America’s housing market,
investors also took comfort from a 2.1% increase in pending home sales in
February, according to data from the National Association of Realtors.
Although US house prices continue to tumble, some economists say they are
about to become cheap relative to their long-run trend.
“Signs are accumulating, especially in consumption and housing, that the worst
is now behind us,” said Nigel Gault, US economist at IHS Global Insight, a
consultancy. “This doesn’t mean we think the economy is now ready to grow
again - we expect GDP to bottom out only in the second half of the year.
“Nor does it mean the labour market is ready to turn - we still expect
the unemployment rate to reach 10% before it peaks. But it does mean there
is now some solid evidence that the period of economic free-fall is behind
us, and that the next step will be a slower rate of decline, to be followed
by a bottoming out in the second half of the year, and a recovery that
gathers pace in 2010.”
Even two of the most notable “doomsters” have cautiously expressed hope.
George Soros, the billionaire investor who believes we are enduring the
bursting of a super-bubble, found the G20 agreement encouraging, if not as
bold as he would have liked.
“Until now, the authorities were always lagging behind,” he said.
“But they have anticipated a very serious problem in the developing world
[where many feared further financial collapse]. I think they have prevented
it by the measures they have taken. There could well be a turning point.”
Nouriel Roubini, the economist who most consistently forecast the meltdown,
now sounds almost upbeat. “Com-p a r e d w i t h t h e s h a r p contraction
in US and global growth in the first quarter of this year, the rate of
economic contraction will slow down by year-end,” he said last week. In his
view, the risk of recession becoming depression has now lessened. BEHIND the
scenes at the G20 meeting last week, stage management was ever present.
Negotiations went down to the wire and final horse-trading took place on
white leather sofas in an area of the Excel conference centre in which an
olive tree with many branches was placed with plenty of heavy symbolism.
Much will now depend on whether countries work together and follow through
on commitments for coordinated action on the avoidance of protectionism and
the imposition of new regulation.
As the summit broke up, Alistair Darling, the chancellor, was already
manipulating expectations. He reckoned there was plenty of meat in the G20’s
agreements last week, but cautioned against instant results.
“With all these things, you are not going to fix anything overnight, and this
is part of a
process,” he said in an interview with The Sunday Times.
“Now everybody knows how bad it is . . . there’s an upside to globalisation,
but the downside is that whereas in the past it would take years for a
problem on one side of the world to work its way round to the other, it now
can happen within months.
“I think we have to be realistic about this; you cannot, you must not, build
up false hope, but I do think the world has woken up, the world is prepared
for action.
“The next test is of whether the world will actually see through these things,
in terms of what’s necessary for financial regulation, and not just saying
we’re going to help the developing economies, but actually doing it.”
What about Britain? Is the worst over, or is it yet to come? Darling knows
that in less than three weeks he has to present a budget that could
undermine some of the hopes that have built up in the past few days. He
will, he concedes, be forced to slash his growth forecast.
In November, he predicted a shallow downturn, with the economy shrinking by
between 0.75% and 1.25% this year; those hopes have been blown out of the
water. Last week the Paris-based Organisation for Economic Cooperation and
Development predicted a 3.7% decline. Economists have warned that public
borrowing could hit £150 billion or more – way above his
prediction of a £118 billion budget deficit.
“There is a way to go yet,” said Darling. “I said in my PBR [prebudget report]
last November that I thought growth would start in the second part of this
year.
“I think the quarter-four figures in 2008 were much worse - there was a
very sharp downturn then. We think the first quarter of this year will be
bad as well.
“We don’t have the figures yet, we won’t get the figures for another month,
but we think they will be bad, because if you look around the world, there’s
nothing that tells you otherwise. That means I think it will be the
back-end, turn-of-the-year time before we start seeing growth here.”
The chancellor’s task is combining what he sees as his duty - “to be
realistic” - with trying to maintain an upbeat tone that could help to
build confidence.
So, he insists, the economy will come through the crisis.
“You really do need to remember that there is every reason to believe we will
come through this,” he said. “We will start to see growth and the key thing
for us then is to make sure we rebuild the economy in a way that can last.”
Economists say the better news on both sides of the Atlantic is consistent
with a picture in which businesses and consumers were stunned by the banking
crisis of September and October last year. The crisis hit confidence, as
well as credit availability, many people and firms put spending decisions on
hold or cut back, and the global economy and world trade “fell off a cliff”.
Now, as some of the fears have receded and credit has started to flow –
albeit slowly – the impact of the autumn shock is beginning to abate.
Getting over it will take time, but interest rates at record lows and £3.4
trillion of stimulus packages around the world may be starting to have an
effect.
In North Walsham, near Norwich, one family business has remained optimistic
despite all the gloom. In fact, Calypso Coffee has seen its sales of coffee
machines rise by 20% in the past year, and business is going sufficiently
well for it to recruit a new engineer. The firm plans to move to bigger
premises in October.
“Even if people don’t buy anything else in their lives,” claims Liz Fielding,
the sales manager, “they’re still buying coffee.”
Additional reporting: Kevin Dowling and Solvej Krause
Hints of optimism on finances and house prices
If people feeling a bit less miserable is a green shoot, there are some on
show in the latest
Sunday Times/YouGov poll , carried out after the G20 summit.
The poll of more than 2,000 people shows that 25% are positive about their
financial prospects for the next few months, while 44% are negative. While
that sounds gloomy, it is better than in December, when the question was
last asked. Then, 21% were positive and 51% negative.
There has been a shift in expectations on house prices, perhaps the result of
the Nationwide building society’s report that March saw the first rise in 16
months. Now 14% expect prices to rise in their area, while 42% predict
further falls. The balance between the two, -28%, is significantly better
than in December, when it was -69%.
Respondents were generally positive about the G20 summit. Most, 53%, say it
was a success, with 44% thinking it will help end the recession sooner. A
majority, 56%, say G20 governments are committed to pulling the world
economy out of its slump.
The summit has helped the government, with Gordon Brown’s popularity up, and
he and Alistair Darling seen by voters as better able to handle the crisis
than David Cameron and George Osborne. More than a fifth of people said they
would be more likely to vote Labour if the economy recovers over the next
few months. However, the Tories retain a clear lead over Labour.
Overall support for the Tories remains at 41%, while Labour’s rating is up by
three points, compared with last month, to 34%. The Liberal Democrats have
slipped one to 16%. The Tory lead of seven points is down from 10 last month.
G20: THE REAL RESULTS
DID THE G20 LEADERS AGREE TO SPEND A LOT MORE MONEY TO COMBAT THE RECESSION?
No, but listening to Gordon Brown, you might have got the impression they did.
He said the total value of the stimulus packages being introduced by G20
members would amount to $5 trillion (£3.4 trillion) by the end of next year,
easily the biggest financial rescue in history. True - but all that money
was from measures already announced by countries.
Brown simply could not resist bandying around the $5 trillion figure because
it sounded so much bigger than the $2 trillion stimulus talked about ahead
of the summit.
SO WHAT WAS THE $1.1 TRILLION BOOST THAT WAS ALSO ANNOUNCED AT THE SUMMIT?
WAS THAT NEW MONEY?
Up to a point. The summit did agree to increase resources for the
International Monetary Fund from $250 billion to $750 billion, to allow it
to help countries in trouble. The leaders also agreed to $250 billion in a
new issue of the IMF’s so-called special drawing rights (SDRs) - in
effect letting the IMF print more money. The summit also promised $250
billion to finance export trade and $100 billion in new loans for poor
countries.
Welcome though these measures are, most of them represent commitments rather
than hard cash, to be provided as and when necessary. On export finance, for
example, the G20 only committed a few billion dollars extra. Experts say,
however, that the significance was that the IMF has been pressing for extra
funds for years, and has at last been promised that it will get it. Fingers
crossed.
WHAT ABOUT BANKERS: ARE THEY REALLY GOING TO FACE TOUGHER REGULATION?
Yes. A new global Financial Stability Board will be established, and banks
will agree to set aside funds during the good times to avoid problems when
things turn bad. Regulators in different countries will cooperate much more.
There will be “tough new principles” on bankers’ pay and bonuses. Hedge
funds and other parts of the “shadow” banking system will be more tightly
regulated.
ARE TAX HAVENS FINISHED?
No, but their secrecy is being curtailed. Most have agreed to offer fuller
disclosure of who has savings and investments lodged with them, how much
they are earning and how much tax they are paying. Those that do not
cooperate will be put on a blacklist. “The era of banking secrecy is over,”
said the G20.
CAN COUNTRIES AVOID TRADE PROTECTIONISM?
The G20 pledged to do so when it met in November, since when 17 of its members
have introduced what the World Bank said were protectionist measures. On the
other hand, the World Trade Organisation, which monitors trade, says nobody
has broken the rules. The London summit committed to completing the Doha
trade round of world trade talks - but without setting a timetable.
In short, it’s too early to tell whether protectionism can be stopped.
Politicians may still have to fight hard to avoid voters’ instinct of
putting national interests first.
WHEN WILL THE WORLD ECONOMY RECOVER?
Next year, according to the G20, which pledged to take “whatever action is
necessary” to achieve it.
Everyone agrees, however, that recovery is likely to be weak, and certainly
does not mean returning to life as it was before.
WHAT IF THE WORLD STAYS IN RECESSION?
There will be another G20 meeting in a few months’ time, probably in Asia. If,
by that time, more tax cuts and spending increases are needed, then the IMF
will advise which countries need to do it. Nobody will be under any
obligation to agree, but there will be moral pressure on them to do so.
WHO CAME OUT OF THE G20 BEST?
Everybody wanted to claim victory. The Germans reckoned they got one over on
Anglo-Saxon capitalism, while the French president, Nicolas Sarkozy,
reckoned his brinkmanship was the key. Le Figaro, a leading French
newspaper, gave both the laurels, proclaiming: “It’s a victory for the
French-German axis.”
In the summit meetings and press conferences, however, the star was clearly
President Barack Obama, whose calm and authoritative performance was praised
everywhere.
However, even he may have been upstaged - by his wife Michelle, whose poise,
grace and style probably provoked more interest and discussion than the
final summit communiqué.
