With so many seemingly contradictory reports and projections for the direction of UK house prices coming out recently it’s very difficult to understand what is really going on. Here I try to shed some light on how figures for the same thing can vary so wildly.

Today Nationwide BS released a report that ‘prices climbed by a seasonally adjusted 0.3 percent month-on-month, defying economists’ forecasts for a fall of 0.3 percent following January’s 0.1 percent drop.’

In January the Halifax House Price Index reported a ‘seasonally adjusted’ rise in house prices of 0.9%. A variance of 1% with Nationwide.

HM Land Registry, which is considered the most accurate and reliable indication of the direction of house prices, recorded a rise of 0.2% for January 2011: a variance from Nationwide of 0.3% and from Halifax of 0.7%.

So which is right? The answer is:- all of them.

How so? If you want to make any sense of these figures you need to look at the context carefully and understand the basis for the calculations and how they are adjusted

  • how recent is the data used? Some data is based on mortgage survey valuations, some on sale completions, and others on when stamp duty is collected.
  • is the data regionally biased by geographical location? Some lenders have strengths in different parts of the country.
  • is the data only based on properties requiring a mortgage? 25% of all homes are bought for cash with no mortgage and so do not show up on some indices.
  • is the data seasonally adjusted? Statisticians can apply all sorts of adjustments to improve accuracy (and get the answers they want!) – is the data adjusted for inflation and if so which measure? If you adjust for inflation UK house prices have fallen 19% from the peak in Q3 2007 to Q4 2010.
  • is the data influenced by the type/value of houses currently selling/built? Availability of mortgages for different sectors/income groups influences the type and value of sales and therefore the data. – is there a vested interest in producing +/- data? If you take into account all of the above factors, it is possible to see why by varying the source of the input data, adjustments and the timing of the data sourcing, you can produce very different answers for the direction of house prices
  • sometimes completely at odds with each other.

In the words of Mark Twain ‘There are lies, damned lies and then there are statistics.’

So are the figures, or the projections – such as Capital Economics prediction of a fall in house prices of 20% for 2011 – relevant to you and should they influence your decision making on buying, renting, self-building?

The figures are at best a broad indication of the direction of the wider market. They do not reflect the fact that the UK property market is based on a series of micro markets, particular to your specific location and house type, sometimes down not just to the post code, but to the particular street. Regional variables render a macro indicator all but meaningless.

If you are a short term property market speculator, a buy to let investor, or a property developer, then the direction of the market is relevant. If, however, you are looking to create your own long term home, then although it is nice to think that you might be getting richer whilst you are sleeping in your bed because the value of your home is increasing, does it really matter if you are not going to sell. Does the value of your home really affect your quality of life?

Take comfort from the longer term view. The UK housing market has seen all sorts of peaks and troughs over the past few decades, but even the worst pessimists and most negative commentators agree that the general direction has always been upwards.

The average house price has increased by 1471.49 per cent since 1975 whereas if house prices had only kept in line with inflation, they would only have increased by 654 per cent using the Bank of England’s figures.

Comments
  • Gill Dawson

    We purchased our home as a renovation project in October when house prices in our area had dropped significantly, it’s a house we certainly wouldn’t have been able to afford even 12 months earlier. But the house prices in our area seem to be showing a very slow and cautious increase at the moment. The figures we’re now watching very closely indeed are the interest rates.

  • fredrick reiley1

    I agree with you that figures for the same thing can vary so wildly. Nowadays each and every thing is getting very costly that we avoid to buy so many things because we can’t afford it. The points you have written above as an answer all are valid. Thanks for highlighting such important issue.

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