Why car sales are through the roof but homebuying down in the basement

http://www.theguardian.com/business/economics-blog/2015/apr/08/car-sales-homebuying-mortgage-lending

Version 0 of 1.

March 2015 was a great month to be selling new cars in Britain. Almost 500,000 were shifted, making it the best month the motor trade has had this century, according to the Society of Motor Manufacturers and Traders. It was the 37th month in a row that there has been year-on-year growth in business.

It was not a great month to be flogging houses. Demand for mortgages, according to the Bank of England, fell significantly in the first quarter of the year, continuing the trend seen in the final three months of 2014.

Something doesn’t quite fit. Buying a home is the biggest financial purchase anybody makes. The second biggest is buying a new car. For the moment, the two are going in opposite directions.

Three things are of note. The first is that the pickup in car sales is not a flash in the pan. To be sure, some of the increase could be the result of people cashing in their windfalls from compensation for wrongly sold payment protection insurance (PPI). In March, demand may have been topped up by those anticipating getting their hands on their pension pots when the rules changed in April. Even so, sales have been strong for some time, reflecting rising confidence.

The second point is that the lull in the housing market would seem to be temporary, a function of the Bank of England’s curbs on mortgage lending in response to a market that was showing signs of overheating. Demand for loans is likely to strengthen over the coming months as a result of lower mortgage rates and a slight increase in the willingness to lend to borrowers with deposits of less than 10%. And, of course, rising consumer confidence should boost sales of homes in just the same way as it has boosted sales of cars.

Finally, cars are being driven out of showrooms at record rates. This should be great news for a Conservative party that is making the economy the central, some would say only, theme of their election campaign. So far, though, there has been no political dividend for David Cameron.