Economists use various different barometers to try and predict when markets are entering or leaving a recession, but one of the most novel I’ve come across in my time is underwear sales. In simple terms, sales of underwear (and the trend is apparently more easy to identify in men’s pants) are broadly flat but occasionally dip. Those occasions when sales decrease are supposed to reflect periods when individuals feel so strapped for cash that replacing their undergarments becomes a secondary concern such as in a recession.
While offering an interesting insight into male attitudes to hygiene, the underwear theory – believed to have been originated by former chairman of the US Federal Reserve, Alan Greenspan – does make at least as much sense of some of the various other recession determinators that do the rounds.
One of the reasons this theory works is that it is a useful indicator of consumer sentiment. People don’t buy things just because they have enough money to do so, but because they don’t expect their other living expenses to impinge on their disposable income and because they feel secure in their jobs and optimistic about the future.
You could equally apply the theory to the sales of non-essential purchases such as holidays or entertainment and it would hold true. This observation of public mood is one of the reasons that the various house price indices and purchase figures make such informative reading. People don’t always just buy property because they have amassed enough of a deposit and because they can afford the repayments, but because they see it as a good time to buy and because they are optimistic about their own – and the economy’s – prospects for the future.
All this is a slightly long-winded way of saying that confidence seems to be slowly returning to the mortgage market and the wider economy in general. First-time buyers are creeping back out of the woodwork and lenders are starting to regain their appetite after a seemingly interminable period without sustenance. Even the Funding for Lending Scheme which has taken its time to get going seems to be gathering pace with 30 participants now signed up. It is likely to be the New Year before borrowers feel the true benefit of this state-aided funding but, allied to the improving mood, it should hopefully lead to a noticeable uptick in mortgage lending.
The amount of money spent in shops in the build-up to Christmas is often cited as another economic barometer, so it will be interesting to see if the high street recovers from a few barren festive periods in recent years. With just under eight weeks to go until the New Year there is a temptation for advisers and lenders alike to wait until January before launching any major projects or initiatives, but the groundwork for this needs to be laid now. If sufficient preparation is undertaken now, then the coalescence of a number of positive factors could mean that 2013 is anything but pants for the UK economy and mortgage market.
Bob Young is managing director of CHL Mortgages