Saturday, January 30, 2010

There is no foundation for further rapid rises

Don’t bet on house prices to continue in January’s fashion

Some words of caution about the recent 1.2% house price rise reported by Nationwide. Essentially, some buyers were unable to complete their purchase before the end of the stamp duty holiday but were too far advanced in the purchase process to abort. Even Stuart Law is downplaying price rises at the rate reported for January!

Posted by quiet guy @ 03:07 PM (1925 views)
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6 thoughts on “There is no foundation for further rapid rises

  • “too far advanced in the purchase process to abort”

    What utter craap .

    NW figures aren’t completions .
    The buyers could abort at any time .

    Personally I think the new guy at NW changed something in the way the figures where calculated when he started at NW last year (the same month the figures became positive) .

    Very coincidental .

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  • @dead spider

    “NW figures aren’t completions”

    Correct.

    I’ve not purchased a property so I’m happy to be corrected but I thought that the a deposit is required to exchange contracts and the time between getting post-survey approval and exchanging contracts won’t normally be long (why wait if you’re in a hurry and you can get finance?)

    Once the buyer exchanges contracts after post-survey approvals then they’re on the hook due to the deposit requirement which commits them to purchase – even if there is a delay to completion. In other words, a surge in contract exchanges aiming for the December deadline ,following post-survey approvals, could result in a rise in January completions by the ones that don’t make the target date.

    Whittaker said that purchases missing the deadline would result in sales completing in January. The article does not state anything about how Nationwide compile their index.

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  • Surprised to read the usually bullish Stuart Law say, “It is unlikely we will see a continuation of the current rate of price growth we have seen over the past few months throughout 2010 due to the need to pay off the national debt with higher taxes, holding back economic growth over this period.”

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  • Nationwide’s house price index methodology is based on (their) mortgage approvals, which presumably occur before the conveyancing stage and after the survey (which the buyer will have had to stump up a small amount for), so may feel committed as they’ll have to pay for it again the next time. As I’ve never bought a house too, I’m also happy to be corrected. If I was being cynical I could suggest that Nationwide went on a go slow with the mortgage approvals, so they didn’t get finished until January. Maybe they were all hung-over from the Christmas party? Guess we’ll find out when next month’s figures come out.

    It does seem strange that their January figure was three times as big as December; 1.2% for December would have been more believable, but then again I find a huge rally in house prices during the middle of a recession to be quite unbelievable, but it exists.

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  • brickormortis says:

    The thing they are not clear about in the NW methodology of average house prices is how they factor in variation in location of house. They only seem to refer to mix adjusting for type of property sold:

    “The mix adjusted average uses a consistent measure of the proportion of each type of property and is able to better reflect the true change in prices.”

    Does anyone know how mix adjustment is applied to location of property. Effectively, in simple terms, how would Nationwide remove the effect of the North-South divide in prices. They say they do but their example fails to mention it!

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  • I think that comment #1 pins it down.
    NW has all the interest in the world to tweak the figures as much as they can.
    Their index will only reflect negative figures again if it really really cannot be tweaked anymore…

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