In August the GDP figures for the second quarter of 2009 were released for most major economies. Perhaps surprisingly, a number of large developed economies exited the recession, whilst the UK and US continued to contract.

On the left we present indexed GDP levels for selected advanced economies during this recession. GDP in the quarter prior to each country entering recession is indexed at 100. This allows us to directly compare the recessions in each country. In Germany and Japan, the depth of the recession has been far more severe than for the UK and US. These countries also entered recession earlier.

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Six months of rising house prices

Based on the Nationwide house price index, prices of residential property have risen every month from March to August. This 8 per cent rise has undone much of the 21 per cent fall during the crash.

However, other indices remain more tentative. Both the Halifax and Communities and Local Government measures have shown much flatter and stalled growth since the trough. Why are the measures differing?

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Low supply and high demand

As discussed in the previous section, low levels of supply of houses for sale have supported prices. On the other hand, demand is growing and estate agents have reported increasing levels of enquiries.

Historically the level of mortgage approvals has been a very good predictor of house price movements around 5 or 6 months into the future. When mortgage approvals have been above 71,000 a month house prices generally rise on a year on year basis. Below 71,000 and they fall. The graph on the left shows this strong correlation – a fit that is quite impressive given that it uses monthly data.

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Calm returning to stock markets

After a period of great volatility, stock markets are now settling back down to a more even keel. This is demonstrated by recent movements in the VIX – an index that measures traders’ expectations of the volatility of the S&P500 over the next 30 days.

In late October 2008 the VIX measure was implying that in the next 30 days volatility in the S&P500 could be almost 25 per cent. In fact, over the next 4 months the S&P500 dropped over 30 per cent.

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