By Robert Ansted, 14 September 2010
This is now the third successive month where all the constituent factors for our IC Confidence Index have produced negative scores. The latest indicator's continuing fall was in part due to its house price factor which dropped to a score of -4 and is close to joining the five factors already on the lowest score possible that may be attained. Clearly an indication that this is not a conducive time for would be investors.
The factor for house prices is based on Nationwide’s House Price Index and its percentage change on month. In August house prices fell yet again this time by 0.9 per cent over the previous month. This is the first time since February 2009 that house prices have fallen in two consecutive months. Nationwide's chief economist, Martin Gahbauer, states: "Recent market trends remain consistent with an unwinding of the supply-demand imbalance that drove up prices for much of the last year. As more sellers have returned to the market, buyers have a greater selection of properties from which to choose and more bargaining power to bid down prices".
| Month | Score |
|---|---|
| June | -26 |
| July | -30 |
| August | -35 |
Even fund managers are acting more cautiously than they did a year ago and this has been put down to their growing fears of a returned recession according to the latest findings from Defaqto.
More people are thinking short-term financial confidence will get worse than think it will get better according to a poll conducted by The British Population Survey. Steve Abbott a director says: "In terms of the housing market those with a mortgage are getting less optimistic about their personal financial situation, the number of them who think their short term prospects are better fell slightly in July but fell more sharply in August. Those number who own their home without a mortgage and are optimistic have halved since June. On the other hand the number of optimists in private rented accommodation has risen. Maybe a good sign for the first time buyer market."
HOW DOES THE INDEX WORK?
The IC's Confidence Index is the first of its kind to take into account stock market, economic and general 'feel-good' factors. It is calculated using 10 factors, split into four categories:
■ Prices (RPI, oil price);
■ Rates (interest rate levels, unemployment figures);
■ Stock market (UK new share issues and rising shares, and the level of the Dow Jones index);
■ 'Feel-good' (wages, house prices, the sunshine anomaly)
UK indices such as the FTSE 100 have been excluded from the components, but the Dow Jones is included because of its global influence. As for the sunshine factor, it's a proven fact that people feel better when the sun is shining - and this can even influence investment habits. Each factor is separately allotted a score from +5 to -5. The sum of these scores gives the Investors Chronicle Confidence Index level, on a scale from -50 to +50.
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