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Just Before Friday's Nationwide Release...

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House price indices cause confusion

Jones Lang LaSalle EMEA Research Several things are clear about the UK housing market. For example, transaction volumes are very low and mortgage lending is not far off the record lows established after the global credit crisis hit. It is also clear that house prices in London are rising.

It is not however clear in which direction house prices are going in the remainder of the UK.

We normally favour using the Nationwide Quarterly House Price Index as this usually seems reflective of market conditions, mirrors trends in several other house price measures and is less volatile than the Lloyds/Halifax Index. It also provides a quantum of how much prices have moved – unlike the RICS Housing Market Survey.

However, the latest release of the Nationwide Index claims that UK house prices have increased by 2.7% during Q2. But of greater significance and surprise is that it claims that house prices have increased in every UK region during Q2 2011. This seems remarkable given what we hear is happening in the market and, more robustly, what other house price measures are reporting. Interestingly, the other index that uses mortgage approval data to generate its house price index, Lloyds/Halifax, also reports that most regions have seen price rises during Q2.

Whilst both of these measures use perfectly valid data and methodology they do lack a direct link to estate agents and the market. For this reason, we tend to believe the trends reported by groups of estate agents in the form of the RICS Housing Market Survey. Although this survey does not give a quantum of how much house prices are rising or falling, it does specify the proportion of surveyors reporting price rises or price falls over the preceding three months. The latest RICS survey reports that, throughout the UK, 28% more surveyors say that prices fell rather than rose during Q2. Furthermore, the survey suggests that prices are falling in all regions except London.

Various other indices also suggest that house prices are falling marginally. For example, the Land Registry report that house price growth is currently marginally negative, both nationally and in most regions outside London.

So, although we usually favour using Nationwide for national and regional house price growth trends, the anomalies of the Q2 2011 results are pushing us towards using and believing the Land Registry results for the time being.

Our conclusion is that we believe house prices are falling marginally in all regions at present, except in London where price growth is positive.

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Is this because the only houses that are selling at those at the top end of the market? Flats and other ftb properties are the ones suffering from lack of real demand, whereas the really high-end stuff is still shifting. Would that account for skewing the data upwards?

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Is this because the only houses that are selling at those at the top end of the market? Flats and other ftb properties are the ones suffering from lack of real demand, whereas the really high-end stuff is still shifting. Would that account for skewing the data upwards?

It would do, plus all those people rushing to beat the deadling for stamp duty on £1,000,000 houses...they rushed to save a few grand ignoring the fact they are 100% over-priced.

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It shouldn't though as the data is supposed to be mix adjusted. But with volumes so low is it possible for them to create an accurate reflexion of the market with thier mix adjustment or worse still is it easier for them to present an inaccurate measure of the market for thier paymasters desires.

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Is this because the only houses that are selling at those at the top end of the market? Flats and other ftb properties are the ones suffering from lack of real demand, whereas the really high-end stuff is still shifting. Would that account for skewing the data upwards?

What zebbedee said.

It shouldn't make any difference due to the mix adjustment used in the compilation of the indices. However the smaller sample size due to low transactions could well be a factor. The reason Halifax for example only publishes regional figures on a quarterly basis is because it believes that monthly numbers would be subject to too much error due to insufficient sample size. This was their view when the market was 'normal', so at present it's quite possible that quarterly figures can be skewed.

The article is also misleading in my view when it says that according to Lloyds/Halifax,"most regions have seen price rises during Q2". I posted the regional quarterly numbers on the Halifax charts thread the other day and as you can see, 7 of the 12 regions show a rise (so 'majority' would be a better word than 'most') and the UK as a whole still fell by 0.5% over the period.

HalifaxRegionalQ211a.gif

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I normally only get a release on a Saturday...on a holiday.

Im afraid i wont be joining the rest of the nation on Friday.

Edited by Bloo Loo

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What zebbedee said.

It shouldn't make any difference due to the mix adjustment used in the compilation of the indices. However the smaller sample size due to low transactions could well be a factor. The reason Halifax for example only publishes regional figures on a quarterly basis is because it believes that monthly numbers would be subject to too much error due to insufficient sample size. This was their view when the market was 'normal', so at present it's quite possible that quarterly figures can be skewed.

The article is also misleading in my view when it says that according to Lloyds/Halifax,"most regions have seen price rises during Q2". I posted the regional quarterly numbers on the Halifax charts thread the other day and as you can see, 7 of the 12 regions show a rise (so 'majority' would be a better word than 'most') and the UK as a whole still fell by 0.5% over the period.

HalifaxRegionalQ211a.gif

I agree on the whole, although would argue that whilst mix-adjustment would negate the impact of higher volumes of slaes of upper-end homes on average prices, if these homes are fetching relatively better prices (which anecdotally seems to be the case) then this would actually skew the figures upwards.

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I agree on the whole, although would argue that whilst mix-adjustment would negate the impact of higher volumes of slaes of upper-end homes on average prices, if these homes are fetching relatively better prices (which anecdotally seems to be the case) then this would actually skew the figures upwards.

No argument from me.

My view is that when we have a situation where the market isn't clearing and transaction volumes are much lower than normal, it's not really possible for any of the house price indices to give a true measurement of the 'average house price'. It's almost axiomatic in most markets that as liquidity falls (and I'm talking here of the traditional definition of liquidity which is 'ease of transaction') then the bid/ask spread will widen. If we could measure house prices based on the mid-point between what buyers are prepared to offer and what sellers are asking then we would likely get a much different picture of the current state of the UK housing market.

Instead what we're measuring now is the average price of houses that are transacting in an illiquid market, and extrapolating a measure of the average price of the entire UK housing stock from this is a mistake (a mistake that the ONS nevertheless seems comfortable in making when it values UK PLC each year in the national accounts).

A simple thought experiment demonstrates this: imagine if tomorrow estate agents and vendors got together and announced that they were increasing all asking prices by 10%, and offers below asking price would be automatically rejected. What would happen? Well, transaction numbers would drop through the floor, but some people would still buy. Some would have too much money to care, wannabe BTLers would still take a punt on low interest rates, highly desirable houses that only come up once in a generation would still attract bidders, and so on. Whatever the reason, houses would still sell, and lo and behold the Halifax and Nationwide indices would show prices jumping by 10% or more, with the Daily Express going into paroxysms of orgasmic delight with its headlines. But could we seriously say that the average price as measured by Halifax/Nwide is reflective of the whole UK residential market? Clearly not.

[Another analogy is to consider an auction where most lots fail to meet the reserve, but the average price of items is measured purely on those lots that actually sold.]

This is why empirical measurements of house prices can become skewed when volumes fall far below the norm, even though the methodologies applied by the various housing indices seem sound (and that includes the repeat sales regression methodology use by the Land Registry). However it's not something that's really worth banging a drum about because it's too nuanced an argument for Joe Public to grasp and would no doubt be attacked as clutching at straws by housing VIs. Everything possible has been done to prevent forced sales into the market, and consequently the power currently lies in the hands of sellers, not buyers, making the above commentary little more than a technical curiosity.

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No argument from me.

My view is that when we have a situation where the market isn't clearing and transaction volumes are much lower than normal, it's not really possible for any of the house price indices to give a true measurement of the 'average house price'. It's almost axiomatic in most markets that as liquidity falls (and I'm talking here of the traditional definition of liquidity which is 'ease of transaction') then the bid/ask spread will widen. If we could measure house prices based on the mid-point between what buyers are prepared to offer and what sellers are asking then we would likely get a much different picture of the current state of the UK housing market.

Instead what we're measuring now is the average price of houses that are transacting in an illiquid market, and extrapolating a measure of the average price of the entire UK housing stock from this is a mistake (a mistake that the ONS nevertheless seems comfortable in making when it values UK PLC each year in the national accounts).

A simple thought experiment demonstrates this: imagine if tomorrow estate agents and vendors got together and announced that they were increasing all asking prices by 10%, and offers below asking price would be automatically rejected. What would happen? Well, transaction numbers would drop through the floor, but some people would still buy. Some would have too much money to care, wannabe BTLers would still take a punt on low interest rates, highly desirable houses that only come up once in a generation would still attract bidders, and so on. Whatever the reason, houses would still sell, and lo and behold the Halifax and Nationwide indices would show prices jumping by 10% or more, with the Daily Express going into paroxysms of orgasmic delight with its headlines. But could we seriously say that the average price as measured by Halifax/Nwide is reflective of the whole UK residential market? Clearly not.

[Another analogy is to consider an auction where most lots fail to meet the reserve, but the average price of items is measured purely on those lots that actually sold.]

This is why empirical measurements of house prices can become skewed when volumes fall far below the norm, even though the methodologies applied by the various housing indices seem sound (and that includes the repeat sales regression methodology use by the Land Registry). However it's not something that's really worth banging a drum about because it's too nuanced an argument for Joe Public to grasp and would no doubt be attacked as clutching at straws by housing VIs. Everything possible has been done to prevent forced sales into the market, and consequently the power currently lies in the hands of sellers, not buyers, making the above commentary little more than a technical curiosity.

Thanks for that.

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How long are they taking to sell? Best indicator of Market health. Sure some will always sell and despite adjusting mix to try and compare like for like you are still only plucking the low hanging fruit which is a massive skew.

House prices are down, down by quite some way . If it takes 10 weeks to sell at average 'sale' price one year and them 25 weeks at the next year. You have had a fall (although I appreciate that delusion and increase in asking can skew that) .

The reason being that you may actually see the average completion not move but the Market is drying up hence to maintain volumes a rice fall is required.

In normal circumstances the Market adjusts to match this fall but low funding costs, high transaction costs ( and perhaps daily express led delusion) is preventing the need for the Market to function.

WIt for the squeeze to get tighter and the self interest of vendors will switch from the desire to get the best price to the absolute necessity to achieve a sale.

Wait a year or two and they'll be begging you to 'insult' them.

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  • 331 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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