19 June 2015, The Times
The property market bounced back with a 3 per cent rise in prices in the past month taking the average house value to £294,351. Alternatively, the market is growing at its slowest for two years with prices in the past month falling by 1.3 per cent to take the average price of a house to £271,000.
Two seemingly contradictory statements about the property market published this week. So which is correct? The first statement is based on Rightmove’s figures, published last Monday, and the second comes from the Office for National Statistics (ONS), published on Tuesday.
Rightmove’s figures for England and Wales are based on the asking — not sale — prices of property listings on its website; these are not seasonally adjusted, but they are up to date. The ONS data is based on UK mortgage data provided by the Council of Mortgage Lenders, so it does not take account of cash buyers. However, the figures are seasonally adjusted, although there is a two-month delay between data compilation and publication — the latest figures are for April while Rightmove’s are for June.
So both are correct althought they measure different things. And each analysis has its merits.
James Butterfill, a global equity strategist at Coutts Bank, says: “The Rightmove data is very up to date but because it is based on asking prices it can be quite volatile. The Halifax house price index has a long history but lacks a detailed regional breakdown, the Nationwide and ONS data has a shorter history but has a more thorough methodology. What is interesting, though, is that if you plot them on a graph they mirror each other — they show the same trends.”
Charlie Wells, the managing director at the Prime Purchase buying agency, says: “The house price indices are well worth reading. I look at all the indices that the various bodies put out. For property with land, I look at the land sales indices by Savills, Knight Frank and Strutt & Parker. For other residential, I look at RICS [the Royal Institution of Chartered Surveyors], because it is a fully regulated body and the advice is measured.”
The indices can provide useful general information on the trends in the property market but they do have limitations, not least because they are not comparing like with like. You also need to bear in mind where the indices originate and what exactly they measure because a slight change in the data measured can have a stark affect on the outcome.
For instance, Butterfill finds that the price to earnings ratio — a measure of the affordability of property — is a good indicator, for his investment clients, of value for money in different areas. However, the standard Halifax ratio is based solely on male earnings, so Butterfill and his colleagues have devised their own based on total household income. By the Halifax measurement, house prices are 5.16 times average earnings but based on Coutts’ calculations that falls to 4.19 times.
It is also important to take note of where the data orginates. Camilla Dell, the managing partner at buying agency Black Brick Property Solutions, says: “Do we look at house price indices when chatting to clients? Yes. Halifax and Land Registry for UK-wide statistics and Knight Frank and Savills for prime London.”
Dell adds: “It’s not like the stock market where all shares are equal. In the property market, no two houses are the same. Trying to come up with the perfect index and judge where prices are going is virtually impossible.”
Wells says: “You have to take each [index] with a degree of sceptism, after all it only takes three facts to make a stat.”
Nonetheless, such is our national obsession with house prices that — rather like weather forecasts — they become something more than guides to general trends. In our minds, they somehow become solid facts that pertain to us personally.
Rob Weaver, the director of investments at property crowdfunding platform Property Partner and a former property valuer, says: “People can put too much store in them. They are a guide showing the trajectory and velocity of the market, but they are not a lot of use for determining value.”
When Weaver is valuing property for his investors he commissions an initial full valuation, this is revised on a monthly basis against the Land Registry data which is, in turn, regularly backed up by an independent desk-top valuation by a property valuer — in which data is gathered on sales of comparable properties.
One of the problems, explains Weaver, is that indices don’t take account of investments made: you may own a house worth £100,000 and by adding a £20,000 conservatory increase the value when you sell it to £125,000. The indices might record a move from £100,000 to £125,000 but won’t record the £20,000 invested giving a false impression of what is happening in the market.
Jo Eccles, the managing director of the Sourcing Property buying agency, says: “I don’t ever look at indices when bidding on a property. It doesn’t matter what the ONS says, the only thing that is meaningful is what similar houses on that street have sold for.”
Eccles prefers to look at trade statistics such as LonRes for recent comparable sale prices and calls local estate agents to gather data on recent sales. She says that those not using a buying agent should look up similar properties on the market and call the estate agents for properties sold subject to contract to find out the most up-to-date prices and ask for details — for instance, if a similar property has sold for £650 per sq ft and it has a large southwest-facing garden and yours has a small north-facing garden maybe a sale price of £600 per sq ft is reasonable.
Neither do the indices take account of the premiums that people are prepared to pay to secure the house they want, says Wells, maybe because they want to be in a particular school catchment area or because they want to buy the neighbouring house to knock through or it is close to a relative. As Weaver points out, the compilation of indices is purely mathematical while house buying tends to be an emotionally led decision.