The downturn in the UK housing market is in evidence as much in high street shops selling furniture and domestic appliances as in estate agents’ offices. And the slowdown has been abrupt in recent weeks, with the Halifax reporting that home prices fell by 0.6% in May to a level about 1% lower than the peak at the beginning of this year.

The big unanswered questions are whether the housing market will make a “soft landing” or whether a 1990s-style crash is lurking, and the extent to which new building will be affected and with it demand for timber and related products.

Economists are split on the first question. Certainly selling domestic property now takes about twice as long as it did a year ago and stocks of unsold homes on agents’ books are rising. But the market is underpinned by record employment levels and rising real earnings. Further, mortgage approvals picked up during the spring to the fastest rate for nine months, promising to bolster values over the summer.

However, pessimists believe that larger price falls will inevitably follow as the economy slows and consumer confidence wanes, weakening demand for homes and prolonging the stand-off between buyers and sellers.

Private housing orders

Nonetheless, the latest figures on private housing orders placed with builders reveal a 10% rise in volume in the year to April. In the latest three months new orders rose 9% compared with the previous three months and were 4% higher than a year earlier. Public housing and housing association orders were also up 10% in April and rose 36% between the two latest three-month periods.

In other sectors of construction, orders for infrastructure projects rose 19% between the three months to April and the same period in 2004, and industrial orders rose by 16%. But orders for commercial work were down 20% on a year earlier. Overall, new construction orders fell in volume by 6% in the three months to April compared with the same time last year.

Further, results of the April construction industry survey by the Chartered Institute of Purchasing & Supply (CIPS) show that activity slowed substantially in April due to a contraction in the growth of new orders, particularly in civil engineering work. The seasonally adjusted index of new orders fell to 55.1, where a figure below 50.0 indicates decline.

Growth of buying activity was hit by the slowdown in work, with the quantity of building materials purchased at its weakest in 16 months, says CIPS. But construction companies remain relatively upbeat. The index of future business activity registered 76.3, as respondents’ optimism was buoyed by the prospect of more tendering opportunities in the year ahead.

The latest official data on demand for UK-made builders’ carpentry and joinery indicates a yearly rise of 4% in the three months to April, while kitchen furniture sales rose by over 5%. Export sales of builders’ carpentry and joinery in March totalled £2.7m – down from £5.3m in April last year. Imports also slowed, with purchases valued at £32.4m compared with £35.4m in April 2004.

Meanwhile average consumer spending on DIY improvements rose by 20% in 2003-04. Spending on alterations accounted for 4% of household outlays last year, up from 3% the previous year. The wealthiest 10% of households spent £74.10 a week altering and improving their homes, compared with an overall average of £22.80.

Joinery demand

A new forecast by Market and Business Development (MBD) points to an 8% volume increase in total UK demand for residential windows, doors and conservatories during the five years 2004-2009.

In a separate forecast MBD predicts that private house construction will rise by 66% in real terms between 2004-2009, while public housing output is anticipated to rise by 58%. Industrial construction is forecast to expand by 16%, and commercial sector output is set to rise by 32%.

The Bank of England kept interest rates on hold at 4.75% in June. But with mounting concern that the slowdown in the

UK economy will persist, it looks increasingly likely that rates will be cut later this year – a move which would help ensure that the forecast growth in construction becomes reality.