Most homes are 15% over-priced, or ‘The Year in Numbers’
We ended 2010 with calls for the monthly house price barometers to be reformed to try and reflect the differences between Clapham in SW11 and Clapham in north Yorkshire.
Housing minister Eric Pickles plans to overhaul the Communities and Local Government house price index, but it is hard to see how one can reflect the health of the nation’s housing market without resorting to sweeping generalisations that will leave someone crying ‘foul’!
In a moment we can look at a possible solution, but first my regular New Year message with a look back at 2010.
Sale prices
As you will see from the table (files.me.com/henry.pryor/owutyt) it wasn’t as bad as many (including myself) had feared. Sale prices held up, with both the Halifax and Land Registry recording average prices as much as 6.6% higher than the year before. (Not to be confused with December’s close compared to January.)
Asking prices
Average asking prices were also 4% higher than 2009 but both expectations in the shape of asking prices and reality for those who were lucky enough to find a buyer were still well below their respective peaks in 2007/8.
Gap between asking and sale prices
The gap between the average asking price recorded by Rightmove over the year and the average selling price recorded by the Halifax fell slightly to £66,757 – well below the peak of £75k reached in June 2009. This is, however, still well above the long-term average of £52k and by this measure suggests that most of the million homes currently for sale are typically overpriced by as much as 15%.
Supply & demand
The supply of new properties coming on to the market has fallen off of late, which will help put a floor under prices as there was an excess of supply during 2010 with volumes up 34% on 2009 to 4,200 per day. With demand suppressed (only up 8% on 2009) with only 2,500 homes actually selling each day, it is sales volumes that still give most cause for concern. Four years ago properties were selling at the rate of over 5,300 a day!
Transaction volumes
It doesn’t matter if average selling prices were £1m if only two properties are selling. What estate agents, conveyancers, builders, decorators, removal firms and printers of change of address cards need is volume. Sales volumes across the UK will end 2010 at 890,000 according to HMRC. In 2006 and 2007 there were over 1.6m sold!
Chances of selling
In December 2006 you had a 14% chance of selling your home in the first monthyou put it on the market. Today that chance has fallen to just 7%! Taking account of how many homes are currently for sale (24% more than last year at 936,000), the number coming on to the market each day, and the number currently selling, then assuming no change in these rates you have a 48% chance of selling if you leave your house on the market for a year! Down from 58% at the end of 2009.
So, what else could we measure that might give a decent indication of the health of the housing market? At present there are averages of asking prices (Rightmove), sale prices (Land Registry, Nationwide, Halifax and Acadametrics), mortgages (British Bankers Assocation and CML), sentiment (RICS) and a mix of all of these (Communities & Local Government).But markets differ across the world and some people complain that an index of the whole country is too broad to be helpful.
The press would like something that relates to the price of a house as this is easy to describe, but we know that the market differs from parish to parish.
If the average price paid for a property in all the parishes isn’t helpful, then how about a cocktail that includes the supply of new properties, the rate at which they are selling and the total number for sale?
We could add in a function of the gap between asking price and what properties actually sell for. Why not look at the chances of selling in say the next month or year? The higher the number, the stronger the market. Like prices, there would be regional variations, but both buyers and sellers might find such an index helpful. It would be a bit like bookmakers’ odds at a race.
To be honest, whilst this could be a valid alternative, I suspect that prices paid take account of both supply and demand. Asking prices may be interesting but are really just a guide to greed.
Deal prices are the best barometer of the health of a market. If you find a nationwide index too bland, then drill down to a local level – all the major indices provide regional breakdowns.
If you don’t find the headline number helpful in the national newspapers, then may I suggest that you buy a local paper, and if you rage against the TV pundit talking about the national picture, then remember, like the weather forecasters, he gets three minutes tops.
If you want more detail, then go online and use any of the many data providers who can give you the average value of property in your street and a few who will even have a stab at what an actual home is worth, although there would still be people who would argue with the results.
In my experience, the people who complain loudest are at either end of the spread that the average is taken from. Estate agents in Chelsea always think that the average does them down, whilst those in south Wales often can only dream of such numbers.
Sadly, that is the nature of maths, and if you are bucking the trend then make the most of it if you are doing better than the average or do something about it if you are doing worse. In 2011 we will see huge strides in data provision from a host of sources.
How would you like to know what the most sought-after property is and how much the people who want them have to spend? Would you like to know who is actually selling rather than just marketing homes in your area? Information like this, and much, much more, is coming this year. It should certainly make the review of 2011 interesting.
Link to The Year in Numbers: files.me.com/henry.pryor/owutyt
Comments
Henry, Have you got a graph to back up your chart or are your talking 99.7% 80110x.
PaulM - amusing to think that agents can actually make a market. It's buyers and sellers who do that - try selling an overpriced gaff yourself and see what happens.
Got bored with the article
But, whose fault is it that property prices are inflated.
Would it be wrong of me to suggest that that it was inexperienced and take on bonus driven estate agents' negotiators aided and abetted by the media. lenders & dare I say it, the Gvmint
My new years resolution guys - to be more succinct! Better for the reader although not great if paid by the word!
Couldn't agree more - some people need to learn to summarise whilst retaining the point trying to be made!
That amount of text is a out off! Maybe thats why nobody has barely commented!
Well if you didn't fall asleep before you got to the end, Henry is right on one thing. It is the number of transactions that is important as well as the "average" prices. Henry operates in London where there is a vast distortion of both transactions and prices compared with the rest of the country, influenced by Londons unique role of being attractive to virtually all nations. Even the bitterest of enemies can have a chat over a cup of coffee there . In any average property price index London has to be taken out the equation. The more worrying thing is that the powers that be, the decision makers, are based in London so whether they like it or not they are influenced by the bubble there and tend to see things through rose coloured spectacles. Henry's analysis is very useful and thought provoking, I just wish it could be a little more succinct in order perhaps to appeal to a wider audience.