Measuring the market is not a precise science. On Tuesday, the Royal
Institution of Chartered Surveyors published a report headlined “Confidence
in the outlook for sales and prices improves” on the same day that the
Government announced that “UK house prices fell by 1.0 per cent in the
quarter ending April 2008”. Further examination reveals that these reports
used differing methodology and examined different time periods.
While the number of indices, market indicators and sentiment surveys has
proliferated over the past few years, many contradict each other and we are
no closer to understanding the housing market. As Richard Donnell, the
director of research at Hometrack, the property data company, recently put
it: “You can find evidence of everything out there.”
Here is a quick guide to the main indicators and what they tell you.
Halifax and Nationwide
When a house price story hits the front pages, chances are that the figures
will have come from one of these two large mortgage lenders. Every month,
both players produce timely house price data that is easy to interpret. They
tell you how much the average house is worth today compared with last month
and last year.
Mostly, they chime with each other and are often backed up by other reports.
However, they can also be volatile, so that a slight drop in house prices
one month is not the end of the world since Nationwide and Halifax include
only sales on which they approve the mortgage - roughly 8 per cent and 20
per cent respectively of the 75 per cent of sales that are mortgage
financed. It does not include cash sales, which have played such an
important part in strengthening the top end of the market.
Their relatively small sample size also hides a potential for statistical bias
and with fewer transactions taking place as the market slows, their sample
is getting smaller still. Their other weakness is that the indices are based
on approved applications rather than deals done. Sales fall through and
house prices can be renegotiated during the long sales process. These
statistics could become more volatile as the market slows.
The Land Registry
This is the gold standard of house price indices. Unlike Nationwide and
Halifax, it includes all lenders, cash sales (25 per cent of the market) and
auction sales as well as repossessions. The index, published monthly, was
relaunched in 2005 using a more accurate methodology that compares like with
like sales rather than relying on rough averages. However, the downside is
that by measuring only repeat sales, the system naturally excludes new
builds, which make up 10 per cent of sales. The other weakness is the
substantial time lag between the time house prices are set and the
publication of the figures. Most property transactions are assimilated into
the data a couple of months after they happen. Given that the price of a
property is usually agreed at the start of the sales process that often
takes three months to complete, Land Registry figures are potentially five
months out of date when they appear.
Hometrack
Their montly data is based on a survey of 3,500 surveyors and estate agents
around the country. It looks at house prices, the time taken to sell and
supply versus demand. The house prices given are based on contributors'
opinions on the achievable selling price for each of four standard property
types in every postcode district, so the prices are hypothetical rather than
based on sales. But this allows the index to track areas where there have
been few sales, which will become more important as the market slows and
volumes of sales drop.
DCLG
The second Tuesday of every month sees the publication of the Department of
Communities and Local Government's figures, which are based on a sample from
50 mortgage lenders. The larger sample size, and the fact that it measures
mortgage completions rather than approved applications, makes it a more
accurate measure of the market than the Nationwide or Halifax. However, it
is not as up-to-date as the lenders' report and, by excluding cash sales,
less comprehensive than the Land Registry.
Rightmove
At first sight, figures from Rightmove, the property website, is every market
observer's dream. It has a big sample size of 200,000 and its report shows
regional variations and even gives snapshots of particular towns. But the
figures can be very volatile and give a distorted view of the market. By
measuring asking prices, this index does not reflect what buyers pay.
Optimistic valuations followed by more sober pricing may therefore be
recorded as substantial price falls. On the other hand, sellers' wishful
thinking on pricing may not reflect buyers' current refusal to pay over the
odds.
RICS
The figures from the Royal Institution of Chartered Surveyors (RICs) record
changes in market sentiment rather than actual house prices. Every month,
professionals in about 300 firms around the country are asked for their
views on whether prices are rising and falling in their area, whether they
are seeing an increase or decrease in the number of new buyers and how this
is matched to the number of homes for sale. Surveyors are also asked about
their future expectations. As such, the RICS report gives a broader view of
the market than a standard house price index and is a useful tool to gauge
sentiment rather than concrete changes.
The way the figures are presented, however, can be confusing. The report shows
that the “net balance” between those surveyors who feel that house
prices/number of buyers/number of sellers is rising compared with those who
have experienced falls. In its latest housing market report (April), RICS
announced that the house price balance dropped for the ninth month in
succession with 95.1 per cent more chartered surveyors reporting a fall than
a rise in house prices. This was an increase from 79.4 percent in March.
REPORTS FROM THE FRONTLINE:
Lincoln
"A dreadful month, indicating a moresevere downturn. Gazundering and
fall-throughs are significant problems. But more vendors are lowering asking
prices, and some buyers are willing to buy at the right figure."
Philip Barnatt Mundy & Co.
Newcastle upon Tyne
"Applicant enquiries have fallen sharply but sales (by volume and value) have
increased. Good quality traditional housing stock is proving robust and in
some cases commanding asking price offers."
Neil Foster, Foster Maddison Property Consultants
Durham
"May was a better month for agreeing sales, but still a long way short of last
May. Confidence is still very low."
Keith Johnson, J W Wood
Hove, East Sussex
"Vendors are realising that there is a price correction and if they make
reductions, it creates interest."
Geoffrey Holden, Parsons Son & Basley
Winchester, Hampshire
"Provided vendors are prepared to be realistic and flexible on price, houses
will sell. Demand for flats remains weak in the face of an over-supply."
Richard Meeson, Dreweatt Neate
Epsom, Surrey
"Instructions and valuations are still plentiful and general activity
levels are up on last month. It has been the best sales month this year as a
result of vendor realism - those prepared to accept lower offers will sell,
those holding out will not."
Mark Everett, Michael Everett & Co.
Hackney, London
"We have plenty of potential first-time buyers who are fed up with
renting but are very nervous because of the negative media reporting about
the housing market. Still, many young buyers want to buy and expect prices
to rise in East London in advance of the Olympics."
Alastair Mason, Bunch & Duke
Pimlico/Westminster
"We still have an imbalance between supply and demand, and when properties
are priced correctly they continue to sell swiftly and in some cases on
comparative bidding."
James Gubbins, Dauntons
London West End
"There are buyers, but the supply does not meet the demand in terms of
prices or location."
Tony How, Davis Brown
Chelsea, London
"The shortage of buyers in Chelsea is acute and many are quite prepared to
wait at least 6 months in the likelihood of further dramatic price falls.
Soon, however, the economics of supply and demand will bring about a
reversal in our fortunes."
Charles Puxley, Jackson-Stops & Staff
