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here to see the rival views of the market
House price surveys have never been so controversial. As Bricks and Mortar
discussed last week, a vocal minority - which believes that the property
market is heading for disaster - claims that data from Halifax, Nationwide
and others give a falsely optimistic view. This row has revealed widespread
confusion over the statistics on house prices. This arises largely from the
different methods used to calculate each survey. As the homeowner who wants
to stay informed needs to watch every one, we show how to read between the
lines.
HALIFAX HOUSE PRICE INDEX
Halifax figures cover all the UK, but are based on prices agreed for
properties on which the bank has arranged mortgages. So there is a bias
towards the areas where it does most of its lending - in Halifax's case, to
the North.
The Halifax index is mix-adjusted: it is designed to reflect the price of a
“typical” property, taking into account location, type of property, square
footage and other characteristics. This is done to avoid the problems raised
by simple averages: so a preponderance of large, expensive country houses
selling in one period might give a misleading picture. Halifax seasonally
adjusts its figures, too: during the spring and the summer, when house
prices tend to be higher, it will tweak its figures to reflect this.
Verdict: 0%house-price growth in January
NATIONWIDE
“Nationwide is the longest-running house price series in the UK - it has been
reporting house price figures since 1952,” says Fionnuala Earley,
Nationwide's chief economist. Like the Halifax figures, Nationwide's index
is based on prices agreed for properties on which it has lent. Nationwide
tends to have a bias towards the South. Nationwide's figures are also
mix-adjusted and seasonally adjusted and take into account a number of
housing characteristics, including the size of the property in square metres
and the neighbourhood. Nationwide makes a number of other adjustments to its
figures: it excludes buy-to-let properties and those which it deems
“untypical”, such as properties worth more than £1 million.
Verdict: -0.1 per cent in January
COMMUNITIES AND LOCAL GOVERNMENT
The Communities and Local Government department carries out a monthly survey
of 50 mortgage lenders, taking the prices of properties that have completed
during that month. Its sample size is therefore much bigger than that of
Halifax or Nationwide. However, like the Halifax and Nationwide indices,
CLG's figures are based on mortgage data and so exclude all properties
bought for cash, which make up one quarter of all home sales. CLG's
slow-to-appear figures are mix-adjusted, but not seasonally adjusted, and
are for England and Wales only.
Verdict: -0.8 per cent in November
LAND REGISTRY
The Land Registry records all property sales in England and Wales. Because it
shows sales prices, it gives an accurate snapshot of what is happening in
any one month. It has its drawbacks. Its data comes from the registration of
completed property transactions, so its figures lag behind many other
indices: in January 2008 we are looking at what happened in last November.
And the data does not reflect the value of the many houses that are
remortgaged each month.
The Land Registry also uses simple rather than mix-adjusted averages. So if
you get lots of very expensive properties selling in one period and lots of
cheaper ones in the next, you would get an average falling price, which
would be misleading. However, if you are looking at large volumes of data -
for example, national averages rather than averages for an individual
postcode - then simple averages tend to work well. Another strength of the
Land Registry index is that it uses “repeat sales regression”: you can
contrast the price of a property today with its price in the past - you know
that you are comparing like with like because it is the same house. Verdict:
0.6 per cent in November
RIGHTMOVE AND PRIME- LOCATION
The average house price given by Rightmove in January this year is £44,000
higher than the most recent figure given by the Land Registry, which may
reflect that Rightmove uses the asking prices of properties placed on its
website. Prices come from 12,600 estate agency branches and the sample
includes up to 200,000 homes each month - about 90 per cent of the market,
it says.
Primelocation, a smaller rival that has traditionally focused on prime
property, also records asking prices; the average price of those on its
website is £371,057.
Verdict (Rightmove): -0.8 per cent in January
HOMETRACK
Hometrack gathers data from 3,500 estate agents across all postcodes in
England and Wales. Results are based on answers to a standard questionnaire
on price and a range of factors, such as the time it takes to sell, the
number of viewings per sale and achieved price as a percentage of the asking
price. Because its statistics are not based solely on transactions,
Hometrack's research reveals trends that other indices might miss. “Take the
boom which occurred over 18 months in 2006 and 2007: we found that house
prices were only going up in around one third of the market,” says Richard
Donnell, the director of research at Hometrack.
Verdict: -0.5 per cent in January
FT ACADAMETRICS
The FT house price index is based on Land Registry data, but there are
important differences between its results and those of the Land Registry.
Acadametrics has sought to deal with the issue of the time lapse in the Land
Registry index by providing an initial FT “forecast” index, followed by two
FT “updated” indices. After three months, once most property transactions
have been recorded with the Registry, the index is based on actual
transactions.
Verdict: 0.1 per cent in January
CHESTERTON
Chesterton, the estate agency, publishes a “poll of polls”, compiled by the
Centre for Economics and Business Research. The poll analyses the figures
from a range of indices, taking into account their strengths and weaknesses.
“It creates an accurate picture of the wider UK market,” says Robert
Bartlett, Chesterton's chief executive.
Verdict: -0.3 per cent in January
We all know that house prices are still overvalued, and that the only reason that they have got so high is a huge amount of money (for mortgages) being available at low rates (a bit like in the US). Now that money is not available (and may never be again!) prices have to come down.
I recently tried to buy a house in Richmond, London, and offered 10% below the asking price. Initially turned down, the vendor came back 2 weeks later and accepted. I am now reconsidering but will probably need another 10% off before I feel even vaguely comfortable. I wouldn't bet against that happening before the Autumn, and even then I won't buy if mortgage rates are still much higher than base.
Paul, London,
Prices are definitely down and the only way to determine this is not to read it here or on Rightmove but to ask someone who is selling by HOW MUCH they have had to reduce their house price lately.
My neighbour bought for £285 and has just sold for £250. All within a year.
Darren, Rushden, Northants
Yes Tony Jones - everything is relative .
In 1979 I bought my first house in Gravesend, a new build one bed starter home, on my own for £13,650 with a £11,750 mortgage on an income of £4,300 (including a bit of overtime) using a saved deposit of £2000. No help from my parents.
Having left school at 19 and worked/studied part time thereafter I was 24 and a junior technical assistant about 4 years away from my first real managerial job.
Average wage today in UK for a 17 to 29 year old is about £19,000 pa.
And the price of the cheapest new build house available in teh Soth east / anywhere??????
Do the maths - it is much much worse now.
Steve, West Wickham, UK
The comments that house prices are "rediculously over priced" is something that I have heard spewed out from people too scared to enter into the property market for the last 20 years and it is getting very tired.
Yes to the first time buyer or someone that is looking to relocate, the cost for a house can fall onto a large spectrum depending on the area that you are in but that has been the case for many years.
Unfortunately for the majority of us first time buyers, or people wishing to relocate to a different area (Manchester to london say) we will / have to purchase at the lower end of the spectrum and hope that the increase in value will give the necessary fund to relocate up the ladder (come on people why do you think it is called a ladder if you could just buy what and where you wanted it would be called the property step!). As for the market returning back to the pre boom days then the country would be in such a state that we still wouldn't be able to afford a house!!!
Steve Williamson, Manchester, UK
The Rightmove figure for January £44K higher than that given by the Land Registry is staggering.It is more than I paid for my last house in the UK just 7 years ago.I got 3 bedrooms and a large garden and would have had enough money left over to buy a nice car.One thing for certain is that all these statistics don't mean a thing.To expect double digit house price inflation as the norm when the BOE are targeting a 2% inflation target is just as crazy as saying 2 +2 = 5.
stephen hulton, eure, france
The state of denial by vested interests that houses are ridiculously overpriced never ceases to amaze me. The market correction, which is just beginning, will restore the price-to-income ratio back to the level it was before the boom. Simple as that.
Paul, Coventry,
Tony Jones, Warrington. Nonsense! The easiest thing to do to compare historic house values is to compare prices with incomes. Today, the ratio of average income to average house price is at an ALL TIME high. Your logic seems to be that if a house cost £300 in X year and costs £200k now, that must be okay. But it's not okay if the average yearly wage in X year was £100 (houses at 3x income is the historic norm) and it is now 25k (houses are now EIGHT TIMES average income). What's the point of pretending to be positive when it is anything but. You might as well say after a devastating earth quake, oh well look on the bright side at least we've saved demolition costs!
Clive, Chichester, UK
Do any of you have a positive viewpoint? Do we really think this is the first time stats have stacked up this way? Ask you parents/grandparents what house prices were like in their day and see if you're still so pessimistic. I'll bet they thought "they can't keep going up" in nineteensixtywhatever, just like you lot know. Think about it, how much is your salary nowadays compared to your first job? its all relative!
Tony Jones, Warrington,
I think you might have misunderstood the land registry methodology. I believe that while it uses simple averages, it is a simple average of the movements on repeat sales rather than a simple average of the current prices, so it isn't subject to the kind of distortions that you describe. Either that or I've misunderstood their methodology.
Benedict, London,
This is very helpful, however, I did recently see a television program (panorama?) that suggested that gifted deposits were being used in a lot of new build developments to inflate the sales price at the development. I found the program very interesting and when following up on it on the web a few days ago noticed that the SFA and Met Police are interviewing over 200 mortgage brokers.
So can we take the data shown above seriously?
Speaking from experience, I've noticed one nice flat next door which has just been discounted from £280K down to ‘offers around’ £220K!
T Newman, Tonbridge, UK
The thing that none of these indices captures is the value added by the present owners. If a price goes up by £30,000, how much have the owners invested through improvements to achieve this increase? This is all the more relevant given the recent craze for 'add value to your property' programmes on the television.
My suspicion is that house price growth (after improvements) is already negative in nominal terms, meaning that in real terms we are well into a severe crash.
Roy, London,
Whichever way you look at it, the game's up. The property bubble has only inflated as far as it has because of relentless optimism that double digit growth was the norm. None of the surveys can pretend this anymore, which means that only a fool would buy property in the next couple of years and at anywhere near current prices. The result? A reverse form of musical chairs. Those sitting on a chair (owning property bought recently) have landed themselves with a massively over-inflated morgage for an asset which is about to crash in value. The players left standing (FTBs priced out of the market) have had a very lucky escape indeed and should watch the forthcoming carnage whilst allowing some hapless BTL landlord subsidise their housing for the next two or three years.
Clive, Chichester, UK
Land Registry data compares sales of the same house over a period. Flaw? Very many resold houses have been improved twixt sales thus increasing their prices. Also, as you point out, if more, expensive houses are sold, the index will increase. Over the past year, "cheap" house sales volumes have dropped by 30-ish% so Land Registry figures have a double whammy of inflationary impression. Leads you to think that the REAL inflation figure must be a negative value!
R Tope, Beaworthy, UK