Changes in the housing market grab headlines in the UK.
This makes sense: those who own homes (or want to) have a vested interest in the value of property.
In economic terms, there is another reason: more so than most economies around the world, the UK economy is underwritten by its housing market.
Britain has a high current account deficit – meaning we import much more than we export. As a percentage of GDP, it is nearly double the US deficit.
Our economy is also hugely reliant on domestic consumer demand.
These things can only be sustained through a high level of private borrowing, but consumers’ willingness to take on debt (and their ability to pay it back) is only possible if they have a strong asset-backed balance sheet.
For most people, assets on their balance sheet means property. That's why economic policymakers keep such a close eye on the housing market – and why it generates so much news in the financial press.
Or rather, why it usually does. There is one notable housing market story which seems to have gone under the radar recently: over the past six months, share prices for the big housebuilding firms have stormed ahead.
Stock in Persimmon group, the UK’s largest housebuilding firm by market capitalisation, has risen 48 per cent since the summer, while Taylor Wimpey shares have risen over 30 per cent.
Overall, the household goods and home construction sector has risen 14 per cent, compared with the 3.7 per cent increase in the FTSE 100 over the same period.
Lows and highs
UK house prices have been floundering since the Brexit referendum in 2016.
This has been due to a combination of weak demand from overseas buyers (put off by Brexit uncertainties), stagnant wage growth undermining the public’s purchasing power and underlying structural issues.
Last year was hardly a let-off in this regard: the political backdrop looked as turbulent as ever and economic data was weak.
Despite this, the new build market exceeded analyst expectations.
Barratt Homes topped the list in terms of completed constructions – building 17,579 homes – with Persimmon and Taylor Wimpey following behind on 16,449 and 14,933 respectively.
Prior to this impressive run, investors were anxious about the viability of housebuilding companies.
As well as the general ills of the housing market, some of the high-profile names came under considerable public scrutiny.
Persimmon was lambasted in the national press last year for the greed of its senior management team – revelations that saw chief executive Jeff Fairburn resign, but only after pocketing a £75m bonus.
Even this year its public image was further tarnished by an independent review highlighting the poor quality of its houses.
Further down the list of big names, Galliford Try faced bankruptcy after huge financial difficulties, only to be bought out by rival firm Bovis Homes. So, what has made housebuilders such a hot ticket again?
Pillars of support
One of the main reasons is the clearing of the UK's economic and political uncertainties.
The housing market was mostly quiet for the second half of last year, prices were stable and didn't come under much pressure.
As the outlook for the UK became more stable, private home buyers could only put off moves for so long.
Boris Johnson made clear his intention to hold an election soon after his arrival into Downing Street, and since then there was a growing sense that his Brexit deal and Tory government – promising to ease regulation and support home building – would win out.
Every development since then only increased this likelihood and sure enough, share prices for housebuilders climbed steadily the whole time.
More recently, expectations for monetary policy have become increasingly favourable for housebuilders.
In the past, housebuilder fortunes have been supported by more and more mortgage lending piling into the housing market.
This is somewhat less true recently, as effective growth in mortgage debt has been curtailed in recent years.
Nevertheless, if one expects mortgage lending to ease, one should also expect housebuilders to benefit. Recent comments from the Bank of England indicate that mortgage lending is indeed about to get easier.
The Bank has signalled in quite clear terms its desire to cut interest rates, and we actually expected it to do just that at its meeting this week.
As it happened, the Bank's Monetary Policy Committee held interest rates at 0.75 per cent.
The Bank of England hasn't been housebuilders’ biggest supporter in recent years, but a rate cut soon would certainly shore up mortgage demand, aiding house prices.
In this environment, market positivity on housebuilding firms makes sense.
All the leading indicators point to a pick-up in demand, supported by a tight labour market.
While the likes of Persimmon and Taylor Wimpey won't get a free ride from the government, the fact the government is committed to building more houses is positive for them.
There are strong parallels here to the US market.
There, the problems from the financial crisis (too much housing being built on too much debt) are beginning to recede and the current housing stock looks tight.
Housebuilders both here and across the Atlantic could well be the first big beneficiaries of this changing tide, but they would not be the only ones.
Furniture and general home furnishing suppliers have historically also benefited, further explaining the multiplier effect housing activity has on consumer demand.