Making sense of property market surveys
WHAT'S REALLY HAPPENING TO HOUSE PRICES?
A client told me recently he had read two conflicting surveys about house prices but didn’t know which to trust.
The government’s Office of National Statistics (ONS) reported that property market activity in England and Wales was slowing whereas Rightmove said house prices were still on the up.
The answer is they’re probably both right AND both wrong!
Although long established and fairly current, Rightmove’s asking prices are seasonally adjusted and include a regional breakdown. On the other hand, the ONS selling prices are also seasonally-adjusted but based on properties bought with mortgages. However, the numbers exclude up to around 40% of ‘cash’ buyers and don’t reflect the three month delay between the report’s compilation and publication.
Other surveys can produce confusing results too. For instance, Nationwide said a few months ago that house prices have risen in the past 12 months by roughly half the level suggested by Halifax, who calculate their numbers in a similar way.
Nationwide’s report was first issued in the mid-1980s, is the first to be released every month and uses an average value for properties at the time mortgages are approved not when the sale is completed. Figures take account of property location and size, but are generated from the building society’s own mortgaged stock which is concentrated towards the south of the country and constitutes around 13% of the total.
Halifax, which is part of the Lloyds Banking Group and the largest mortgage lender in the UK with around 20% of the market, has been providing data on property prices for a similar time as Nationwide but publishes a few days later each month.
However, the Halifax survey is again based not on completed sales but mortgage approvals of its properties, which are situated more in the north of the country, and lack a detailed regional breakdown.
Of the other contenders, Land Registry has provided the largest monthly sample of transactions in England and Wales since 1995 but, unlike the ONS, includes up to 40% of ‘cash’ purchases. Results are calculated on the price change for houses and flats sold several times but exclude brand new homes and are generally at least two months out of date.
Hometrack has been producing a house price index every month for over 20 years but now covers house price movements in major UK cities only rather than the whole country.
The Royal Institution of Chartered Surveyors (RICS) has proved to be a reliable identifier of trends and turning points in the residential property market since 1978. Their monthly report was described by Goldman Sachs as “the best lead indicator of house prices.” On the other hand, RICS doesn’t include price data and numbers are taken from a relatively small sample.
Different house price survey outcomes based on varying methodology mean the market may be regarded as much stronger or weaker than it really is, which compromises decision making.
Accurate pricing is even more important if the market enters a period of uncertainty following the EU referendum.
In addition to inconsistencies, compilation of the indices is generally a mathematical exercise, whereas home buying tends to be more emotionally led.
For instance, selling prices based on a rate per square foot may reflect a south facing aspect, property condition, larger gardens, the “premium” paid by some to live in a particular school catchment area or close to family and friends.
Establishing a clear direction for the property market is virtually impossible as no two homes are the same. Market surveys can never be more than a guide to actual house price movements so many commentators rely on an average of the main indices.
A more reliable assessment could be available now data from Land Registry has been added to the ONS figures to create the UK House Price Index (HPI). The new measure produces separate monthly figures for England, Scotland and Wales based on completion prices of all properties - with or without mortgages - as well as newly built homes but will be up to two months out of date.
Early results have shown the most significant change is a reduction in the average estimated price of UK homes from £292,000 for the ONS to £209,000 with the new index as well as a slightly faster rate of price increase as less weight is given to more expensive properties.
Perhaps of more concern is that the use of data from the Valuation Office to compile this index could be used to assess the council tax of every home in the country for future increases!
Probably the best way of finding out what’s really happening to property prices in your street is to speak to independent chartered surveyor and ARLA-qualified estate agent like Jeremy Leaf who have been speaking authoritatively about the housing market to their customers and the media for over 30 years.