Prices up; prices down; prices stagnating? What is actually happening?

Having acted as a buying agent in North Yorkshire for the last 6 months I take a very different view of the market from a buyers perspective.  I work incredibly closely with my clients’ – indeed during my involvement I almost feel like a member of the family!

In my profession it is imperative to have a good handle on the market and understand current trends to allay any concerns my clients have over the market as a whole.  I need to have the answer to the most asked question “I see the latest figures are suggesting that prices are declining?”, “I see the latest figures are suggesting that prices are rising?”.  There are differing figures released each week. The result is one of confusion – what do all these figures mean, what are the sources and which figures should we believe.

I have therefore decided to try and clear up some of the uncertainty……

The release of dramatic house price statistics by Halifax last week spread alarm among homeowners and reduced the share prices of house builders and mortgage lenders.   But are the Halifax figures, which showed sharp falls in house prices last month really pointing towards another downturn? Are we heading for a property market crash?  Not necessarily…

The statistics released by Halifax should have come with a health warning.  The figures show that house prices fell by 3.6 per cent last month, wiping about £6,000 off the average value of a house. This is the biggest monthly fall since the index began in 1983.  It is a horrifying figure, but it is more likely to be a statistical blip than a sign that the property market is on the verge of collapse.

In that case, are prices still rising?  Well, no.  Judging by the rest of the figures released by Halifax, the market does seem to be slowing.  Values in the third quarter of this year were 0.9 per cent below the previous three months.  Yet the rate of decline is far slower than the quarterly falls of 5 per cent and 6 per cent that were recorded in the second half of 2008.  Moreover, the average house price is £162,096.  That is 2.6 per cent higher than it was last year.

Why are the numbers so confusing?  Because of the way that they were compiled.  The Halifax statistics are based on the lender’s own mortgage book, not the whole of the market.  It excludes any cash transactions as well as house purchases that were made with mortgage offers from rival banks. Also, there are fewer houses swapping hands.  That contributes to a reduced sample size and, therefore, to greater statistical volatility.

Should we simply ignore the Halifax statistics?  We must look at the bigger picture. Halifax’s quarterly figures actually match the same statistics from the index produced by Nationwide Building Society.  Both report price falls of 0.9 per cent in the past three months, compared with the previous quarter.

But don’t Halifax and Nationwide indices always disagree?  The two sets of statistics have been pointing in opposite directions since February.  The September figures published by Nationwide show a slight rise, by 0.1 per cent, over the month, after falls in August and July. Halifax reported price rises over those months.

Why are the numbers so different?  When sample sizes are small, it is easy for figures to become distorted.  Moreover, statistical methodologies, such as seasonally adjusting the numbers (a practice followed by both Halifax and Nationwide), could exacerbate this volatility.  Ray Boulger, of the mortgage broker John Charcol, has analysed the figures.  He found that in February last year and this year Halifax reduced the size of its seasonal adjustment by 1.9 per cent while Nationwide increased its comparable figures by 0.2 per cent.

Are statistics from the estate agents any better?  John D Wood, the estate agent, caused another stir by announcing that the prices of top properties in Central London have risen by 32 per cent over the past year, contradicting other measures.  The agency attributed the astonishing rise in prices to international buyers and the resurgence of City bonuses

What about surveyors; surely they would know?  The Royal Institution of Chartered Surveyors does not measure average house prices.  However, its September report shows that more surveyors are experiencing falling, rather than rising, prices.  They blame the price reductions on the sharp increase in the number of homes for sale, which outweighs the demand from buyers.

Are there any accurate measures of the market?  The most precise set of figures comes from the Land Registry.  It records the final price paid in every property transaction that is completed in England and Wales.  Unfortunately, these statistics are not very timely.  The Land Registry figures will be released almost a month after all the other indices.

What’s the next best thing? The LSL Acadametrics house-price index is based on Land Registry figures, so it analyses the actual prices of every single transaction in England and Wales.  But to keep the index up to date, the most recent figure is based on a forecast of Land Registry figures, using data from an “index of indices”.  Therefore, it cannot claim to be totally accurate.  The LSL Acadametrics index shows that prices rose by 0.2 per cent last month, to £223,965.

Why doesn’t the Government provide a reliable set of statistics?  Communities and Local Government (CLG), which was previously the Department for Communities and Local Government, started to produce its own statistics in 2003, with the intention of establishing the best measure.

However, this summer the new coalition Government announced a review of the figures.  Jill Matheson, the national statistician, is investigating the “coherence and compatibility of the house prices statistics published by CLG and the Land Registry in the context of other private sector indicators”.  The first part of her findings is expected to be published this year.  Look out for it at statisticsauthority.gov.uk.  

So what is really going on?  Though some market surveys are still reporting rising prices, most indices point to modest falls.

It is not great news, but it hardly represents a house price apocalypse.  The Halifax statistics should have come with a health warning …this is more likely to be a blip than a sign of collapse.