“No matter how long the winter, spring is sure to follow” – proverb.
Welcome to the supplement and Happy Easter to all! Today I only wanted to provide a whistle-stop roundup of the most recent news, and then get into a bit more of a reflective piece as something to think about over the rest of the brief holiday that we have here.
As last month, Halifax bucked Nationwide’s trend and told us that prices went UP in March, not down. Confusion abound. There was a merry conversation midweek on Facebook where a recurring doom-monger posted the Nationwide release and then denied the laws of all mathematical and statistical reasoning, citing his “superior qualifications”, as to why this was the beginning of the middle of the end, or something like that. These “superbears” are always out there and in the great house price crash of 2073 (or whatever) they will finally be able to say “I told you so”; once the average house price is over £1m in the UK, not that £1m will be anywhere near as many hills of beans as it is today!
As usual, when reasoning fails, it’s better to disengage. Halifax sees month-on-month improvement of 0.8% and a mere 2% gap between now and the peak in August 2022 (on their numbers). As I’ve alluded to before, Truss might have actually helped buyers here in a strange way – knocked the froth off a racing market, and given them perhaps a “free year” where inflation will have run at a decent single digit number (by the time we get to August), making prices more affordable in real terms.
There are other figures of interest however. Mortgage approvals were particularly low October – February – lower than the “steady state” market so, as predicted a number of times last year, what we are really seeing rather than price adjustment is transaction volume adjustment. It takes a period (4-6 months, or more?) for confidence to return after the kick in the guts that was the spike in mortgage rates in late September and October 2022; there were also a lot of transactions bought forward during Covid and the stamp holidays of course, so the future, when it becomes the present, has to “pay those back” at some point.
That’s today’s image; the further nuance, however, is that January’s figure was slightly above predictions, and February’s figure was well above – around 8% above consensus. That’s significant, because, like the economy, the housing market isn’t behaving like the wounded beast that predictors thought it would. The doomsayers are, once again, in the balance, scratching their heads at their poor predictions, as we go into Q2 ‘23.
We need to also remember; in the past, in similar-type situations, the housing market problems have been staved off for some time. The music keeps going for a bit longer. There’s definitely lower demand here, although putting the ONS and the Bank of England figures together, there were 76,920 transactions over 40k in the UK in February ‘23 (and a few below that, of course), the 43,540 mortgage approvals puts quite a bit less in the pipeline (if we assume 30% cash buyers as a typical historical figure, that would mean around 62.2k agreed sales, and perhaps 80k dropping out of the pipeline (77k plus those below 40k?) – which wouldn’t be a typical February. The data doesn’t lie – there’s definitely a transaction volume slowdown from the past couple of years, but of course that was inevitable. More importantly the mortgage approvals are around 25% lower than the historical number, which would see 850k or so transactions performed this year as not a bad estimate – quite a bit lower than average.
The Bank of England commentary is quite enlightening actually, and so I’ve replicated it here:
“Net approvals for house purchases in the United Kingdom, an indicator of future borrowing, increased to 43.5 thousand in February 2023, up from a revised 39.6 thousand in January, which was the lowest since the early stage of the pandemic in May 2020 and one of the weakest figures since January 2009. It also compared with market expectations of 40.5 thousand. This was the first monthly increase in approvals for house purchases since August 2022, despite the rising cost of living and higher borrowing costs. Meanwhile, approvals for remortgaging, which only capture remortgaging with a different lender, also rose to 28.1 thousand in February from 25.4 thousand in January. The ‘effective’ interest rate, the actual interest rate paid, on newly drawn mortgages increased by 36 bps to 4.24 percent in February. The rate on the outstanding stock of mortgages rose by 10 bps, to 2.64 percent”
You’d expect January to have been hit the hardest by the KamiKwasi budget. 3-4 months hence, give or take – right in the sweet spot. However, look at the other stats – quite a few switching lender, although data on product transfers would be incredibly useful side-by-side; effective rate (cost of credit) up by nearly 10% (0.36 on top of 3.88 to get to 4.24), and the overall rate on the outstanding stock of mortgages up 4% to 2.64%, which will be all weighted on those new entrants to the market of course. So, on average we pay 2.64% at the moment, but new loans were paying 4.24%. As I write this, those remortgaging at 75% or below, which will be the vast majority for remortgaging, especially at this time, can get around 4.1% but of course not everyone can get the best rates, 90% and 95% are facing best prices of 4.75% and 5.3% accordingly – below the stress test, but well above the average and this is of course the major factor choking demand.
What that lot realistically proves is that this is a puzzle, with mixed signals. A trappy market. For those looking to expand portfolios – that should be a good thing! These markets take time, effort, skill and patience – and, as always, solid risk management. The next Credit Crunch seems to have abated for the moment, with little “new news” on the Banking Crisis (or not) front.
That’s the tale of the tape for now. Onto the promised piece on reflection, and I wanted to spend some time talking about efficiency.
I spoke of productivity not too many weeks back, and the first bridge to cross here is “What’s the difference?” – well, productivity measures output given the input costs, whereas efficiency measures how well you use all of your resources to get a task done. It might be that the answer is there, but those resources are not used because of a lack of understanding, or training; so often, I see people signed up to several data aggregation platforms for example, whereas the reality is they don’t even have the time to use one properly, or put the right level of time into learning one of them properly. They just “get more aids” when help is not the answer; focus, and training, is.
The “holy grail” of this sort of conversation is espoused by Tim Ferriss and his four-hour work week; an incredible commercial success as a concept. Forbes ripped Tim a new one in 2019 when they described this philosophy as “everything that’s wrong with the modern world”, because there was too much “perception is reality” injected into the thinking. However, the catch in the title is the idea of being so efficient as to be able to get a meaningful working week squeezed in to only four hours.
Reality often bites – as does boredom. I’m not ready to only be working four hours a week just now, aside from anything else. It’s too enjoyable! (sometimes!). Still, likewise there’s no point hanging around in the office or at the computer when there’s nothing left to do – there’s no point writing the supplement in 4 hours if 2 will do…….
So, part of the key is always not having too many tools at your disposal. The process of choosing which one is always a waste of time and effort. If you are efficient, you know what you need, when you need it, how much of it you need, and act accordingly. You don’t even need to think that hard. It becomes hardwired into your decision-making, with enough effort, and what was once a “system 2” task (borrowed from the great “Thinking, Fast and Slow” by Daniel Kahneman), can become a “system 1” task. Beautiful for freeing up headspace.
That’s you and your efficiency. You can at least control that, if you have the appetite and the discipline. What about others? That’s where things start to go wrong, right?
This is, to an extent, why phenomena like the “nudge unit” exist. Small nudges towards certain types of behaviour – reward programmes – positive reinforcement; alternatively solid and clear management structures, personal development plans, a strong culture – an organisation that knows where it is going and gets the staff to buy into that.
You can’t control it, but you can influence it – and that’s the point. And whilst you can measure as much as you like, leadership starts at the top – management structures will not protect a weak leader. People will rebel, leave, do anything but their job, if the leader is weak. There is no such term I’m aware of as yet in the personal development space “Efficient Leadership” but it should be a strong consideration.
One great example was put on the table in the past couple of weeks by a business partner of mine. She organised a meal to take everyone in the business, even those who work one shift a week, out – in order to say thank you to them and share in some of the fruits of everyone’s labour and our risk; it means so much more than anything else when it is not an empty gesture. That’s great leadership – but it is also efficient. A couple of times a year, that suffices – and that one variable that everyone has the same amount of – time – is still preserved.
The flip side to this can be when such gestures become expected, and then the absence of them for any reason causes disquiet. This is a sign, normally, that the team is not right and the culture is not set as it should be – but again, the efficient leader would have managed expectations, or set a target that needs to be hit before the next event – perhaps even chosen by the staff team, with limited or no input from owners/managers.
It would be folly to throw out the Ferriss with the bathwater here – we should all be aiming to be efficient, but not in a “fake-it-till-you-make-it” way, in a real, and authentic way – and that is what will lead the team into battle again and again, until the war is won many times over over the course of a successful career.
I’m going to take a pinch of my own advice here and be efficient – and let you be efficient with the rest of your Easter! As always – keep calm and carry on……..