Further reading

Britons! Before you press checkout on that heavily discounted puffer coat or trucker cap , have a quick scan of a note on UK housing from Berenberg:

We now believe that average mortgage costs, as a proportion of average income, stand at 50%, which is just shy of the GFC peak of 52%. Not surprisingly, the large recent increase is due to the spike in average mortgage rates. This rate compares to the 20-year average of 36%.

The decline in affordability is even greater if we reflect a cost-of-living impact. For example, if we adjust the average annual wage of c£32k down by 10% (£3,200) to reflect higher fuel and food costs, the ratio of mortgage cost to income increases to 55%.

For the housebuilders this means another “material profit decline” in 2024. Order book protection that supports sales over the next few months will burn away to nothing, so consensus expectations of the trough being hit next year are “far too optimistic”, Berenberg says.

This isn’t an existential problem for the housebuilders. They’re rich, for all the mostly political reasons we’ve discussed here ad infinitum . But new land purchases will have to drop off to preserve even a reduced dividend and the value of their landbanks will slump: Berenberg reckons land prices will fall by about 35 per cent. (All things equal, maintaining a 20 per cent operating margin would require land prices to nearly half, it says.)

We’ve been here before, of course. The crash in land values through the GFC was one of the factors that allowed the larger housebuilders to claim share from the building industry’s soft underbelly and form what can, from certain angles, look a lot like a cartel specifically designed to defend excessive operating margins by building too few homes .

A replay through the current recession would be regrettable and predictable. But at least you can live in a heavily discounted puffer coat.

Elsewhere on Friday . . .  

— Black Friday disambiguation (Wikipedia)

— FTX’s ownership of a US bank raises questions (New York Times)

— The EU’s industrial crunch (Apricitas Economics / Substack)

— Greece’s economic tightrope act (Grecology / Substack)

— You’re paying more tax than you thought (Bloomberg)

— Somebody’s been on a gold-buying bender. It’s not clear who — or why (Marketplace)

— To my surprise, Apple went from surely-about-to-collapse to one of the most valuable companies ever (Irish Times $ )

— How the Great Depression shaped people’s DNA (Nature)

— America’s billion-dollar tree problem is spreading (Wired)

— Where have all the snow crabs gone ? (Nautilus)

— Posing like American farmers is the latest trend among Chinese influencers (China Project)

— The last Ridge Racer (Arcade Blogger)

(H/T to everyone on the Alphaville.club Mastodon server .)