Throughout the last two years, the suspension of normal economic and financial relations has resulted in wild swings in money flows to households which in turn have resulted in extreme volatility in such basics as spending and saving. The reasons are fairly obvious: lockdowns cut the opportunity for plenty of the usual spending, whilst governments' furlough payments kept income flowing into your account.
In 2020 we got the collapse, and then much of 2021 was taken up watching the rebound. Catching up on that deferred spending made for spectacular year-on-year retail numbers. To take just one example, in the US, personal spending on goods and services fell 3.2% in 2020, but in the first 11 months of 2021 rebounded by 11%. And that in turn was met by supply chains only just waking up from the medically induced coma.
2022 is the year when this first wave of volatility gets dialled down, because household finances are settling back to 'normal' patterns.
Again, the US illustrates the point. Back in early 2020, the personal saving rose to an astonishing 33.7% of disposable income. That came down throughout 2020 and 2021, but by November last year it was down to 6.9%, which was actually below the pre-covid long term average of 7.4%. Moral - the 'catch-up' spending has been done.
Today's UK mortgage data shows something similar. In the UK, housing investment is the mainstay of personal saving efforts, so throughout the pandemic the housing economy was supported by a swathe of tax incentives and debt holidays. And so mortgage lending for new purchases rose 12.3% yoy in 2020, but has been falling since July 2021, and was down 32.7% yoy in November.
But it's the change in refinancing behaviour which is revealing. This is, after all, how households take cashflow from the rising equity value of their homes. With household finances underwritten by the government during the pandemic, the value of remortgaging a record low of 22% of the value of new mortgages. But those days are over, and by November, whilst new mortgages fell 32.7% yoy, the value of remortages rose by 43.5%. The proportion of new remortgage debt to new mortgages has now risen to 37%, which is roughly back to the pre-covid l't average of 39%.
Just like the US saving rate returning to normal, so the rise in UK remortaging relative to new mortgaging tells us we're back in the realm of 'normal' activity. So don't expect rebound spending in the US to have legs much longer, and ditto in UK demand markets, including housing.
