News

Market Update
Average earnings in the three months to July rose at their fastest rate for six years. Consumer price inflation fell back to zero in August, from 0.1% the month before. This was in line with the consensus forecast and was helped by a fall in petrol prices. Core inflation, which leaves out volatile food and energy prices, also fell, from July’s 1.2% to 1%.
Economists say the Consumer Prices Index will hover close to zero for most of the rest of the year, and could even fall back into negative territory. Citigroup economists pushed back their forecast for a UK rate rise from the first half of 2016 to the last three months of the year. This surely can only be good news for the home buyer. Long term interest rates to remain low, wages on the rise and inflation back to zero leaving the house holder with a larger disposable income.
The most important event of last week was, in fact, a non-event – the US Federal Reserve chose not to raise interest rates.
After weeks of anticipation and debate, the 0–0.25% target range for the federal funds rate stays where it is, at least for the time being. The decision of the Fed’s monetary policymaking body, the Federal Open Market Committee (FOMC), was not announced until late on Thursday. While they waited for it, USA and European equity markets had rallied earlier in the week, even as Chinese stocks endured yet another sell-off. Some had expected a rate hike, but my own opinion was that the Fed would pass, so the decision was not a huge surprise. Since July, the International Monetary Fund has urged it to wait until 2016. On Wednesday, Goldman Sachs’ CEO Lloyd Blankfein also counseled delay, saying that the economic data “isn’t compelling an interest rate rise at this point”.
What really struck markets, however, was the tone of the accompanying statement and remarks by Fed chairman Janet Yellen. “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the statement said.  What that means is we are not out of the woods yet, we need to see inflation start to rise, not threaten to fall below zero. The housing market is suffering from a double edged sword at present. Low interest rates and inflation forming one edge and global uncertainty forming the other. Uncertainty will always win, it is the curse of any economy or market, particularly the housing market. On the positive we are still selling, albeit the lower and middle market areas, the higher end has the above to deal with plus the uncompromising level of property tax.
Bill Reid
Reid Estates