A house price revival looks flimsy

Wishful thinking and tiny sample sizes afflict the bewildering array of price indices. A real recovery is a distant prospect

There are nine separate housing indices put out every month. Better known providers include the Land Registry and Revenue & Customs, who use sale prices and volumes; the Halifax and Nationwide, whose numbers are based on mortgages approved; Rightmove, who use asking prices; and Hometrack and Royal Institution of Chartered Surveyors (RiCS), who report the results of surveys of agents. Others use a combination of these with additional data thrown in to confuse.

You may notice that the majority of these surveys are produced by those involved in selling property or providing the funding for property. Since it is human nature to want to gravitate towards an optimist, it makes commercial sense for businesses that are involved in the property market to describe the glass as being half-full rather than half-empty. Who wants to instruct a pessimist?

Since Easter, most of these monthly updates have shown an improvement. The lenders, in the shape of the Halifax and Nationwide, have reported prices rising by about 1.5% a month, with the Nationwide just this week claiming that house prices were only 2.7% down on the prices of 12 months ago.

Today, the Land Registry published its July survey of completions, which has prices down 11.7% over the past year, and since their sample is much bigger, covers all cash transactions as well as those with mortgages, I tend to go with their figures rather than with the Nationwide.

However, the biggest problem when looking at the average prices that the lenders provide is that they give no idea of just how small a sample their numbers come from. The RiCS monthly survey is actually just the views of around 275 surveyors across the country. The lenders don't actually have a much bigger sample by the time you remove the cash purchases and all the other transactions that their small print confirms they don't include.

If two homes were sold last month and just one the month before then estate agents and lenders would be jumping up and down telling us that there had been a 100% increase in the number of homes sold, but the bottom line is that there would still have been only two sales. There are 24 million homes in the UK.

The Land Registry gives average prices but it also gives an idea of the number of transactions that have taken place in England and Wales. Revenue & Customs does a similar exercise but for the whole country and between them, we can get a good idea of how little business is actually being done to provide the prices that are being quoted.

In August 2007 there were just over 5,000 homes selling per day. In January this year the low point was 1,000. Today they are selling 2,600. More than double but still only around two properties per town in the UK.

The average price of homes for sale is £220,000 according to Rightmove, but the average price of homes that sell is just £155,000 according to the Land Registry. While some canny buyers are negotiating substantial reductions I suspect that actually, the discrepancy in figures can be attributed to more cheaper homes selling than expensive ones. The Land Registry sale volumes confirms this with 57% fewer homes sold between £1m and £2m in May.

Around 2.5 million homeowners are either close to or already in negative equity according to broker John Charcol. They can't move without the 25% deposit they will be required to find for their next home. So the number of new properties coming on to the market will be depressed for some time to come. The number of buyers with a squeaky clean credit history will also be small but I suspect that as interest rates rise over the coming months, the number of properties for sale will increase compared with the number of people who can afford to buy them and this will once again depress prices. We may yet see a double-dip, with house prices that appear to have stabilised based on the tiny number of transactions falling further as supply increases.

Like Winston Churchill, I don't think that this the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.

Henry Pryor
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds

Navigation

Secondary links