Investors should have increasing confidence in a UK economic recovery as the housing market shows strong signs of bottoming, Richard Woolnough believes.
The £4.27bn M&G Corporate Bond fund manager says while mortgage approvals and first home buyers remain muted, the market can still stabilise in the absence of the leveraged consumer.
"The consensus view seems to be that demand/supply ratios have lost their relevance because the volume of transactions is low," Woolnough says.
"We differ - to make a market you have to focus on supply and demand, and this lack of supply is fundamental and reflects the cheapness of housing on a serviceability basis.
"The UK housing market has traditionally been driven by first time buyers, as reflected by the historically close correlation between mortgage approvals and house prices. This buying power is now limited, but supply is equally limited."
Woolnough believes new less levered buyers will step into the breach, with existing owners of property holding on in an attempt to service historically cheap debt.
"Of course, higher interest rates could rapidly change the supply dynamic, but the authorities are acutely aware of this, and with inflation subdued, rate hikes still look a long way off," the manager says.
"Monetary policy is thankfully working in the UK. Low rates are directly supporting the housing market, and in turn supporting the economy.
"Now that the housing market is showing strong signs of bottoming, one can become more relaxed that the economy can recover."
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