Tuesday, March 23, 2010

Does low volume mean price statistics are unreliable?

Mortgage lending still subdued, say banks

The number of mortgages approved in February by the big banks was 35,275. "House purchase approvals were some 16% higher than in February last year but still well below the figure in December as the aftermath of the year-end change to stamp duty was still working through," said David Dooks of the BBA.

Posted by ontheotherhand @ 01:41 PM (2399 views)
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10 thoughts on “Does low volume mean price statistics are unreliable?

  • Does low volume mean price statistics are unreliable?

    Can be, but it depends on the sample i.e. how representative the sample is of a ”usual” set of activities. The key thing to watch out for are ”average” values because, unless the outliners are removed – i.e. values high above, or well below the usual samples – then the result will be distorted and misleading.

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  • How representative the sample is of ‘the usual’ is the interesting point.

    – “The average value of house purchase approvals (£140,800) was 11.5% higher than a year ago.”

    But prices haven’t risen 11.5%. And this is on slightly higher volumes than a year ago (up 16%).

    Does this mean that a different type of person is buying now ? A different mix of houses ? Or are they just borrowing more relative to the value of the houses ?

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  • ontheotherhand says:

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  • mark wadsworth says:

    OTOH, that is a most awesome chart, where’s it from? Can anybody be bothered plotting the post 2007 crash on there? If the correlation still holds, we’ll be back to YoY minus 20% in six months time.

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  • A percentage change means nothing until you look at the scale, i.e. what the min, max and average values are. For example, pre-2007 the average mortgage approval total is in the region of 100,000 with a max of around 800,000 and a min of 135,000 http://www.londonstockexchange.com/private-investors/interchange/authors/john-clarke/tryingtomakesenseofthemonetarydata.htm

    Now its crawling along near the bottom of the graph with a very small difference between min and max values – There could be a rapid increase in percentage change – even to 100% and still this wouldnt even come close to the lowest minimum for over 20 years.

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  • Remember, whenever the Bank of England says “Individuals and businesses are not getting enough access to credit”, what they really mean is “We are not throwing enough cheap money at borrowers at savers’ expense”.

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  • fallingbuzzard says:

    I have another take. They mean: “We are not seeing enough take up of expensive money by borrowers to recapitalise the banking system as quickly as we had hoped would happen. What are we going to do?”

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  • ontheotherhand says:

    MW, yes the correlation seems very strong indeed. It seems about 80,000 transactions are needed a month for flat prices. I guess there is a baseload of death, divorce, repossessed sales that determines the minimum number of transactions needed per month.

    Find the chart and some other excellent ideas here http://www.houseprices.uk.net/articles/property_transactions/

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  • Hmm – It would seem 80K are needed, but I don’t know how well that correlation holds right now given the change to the credit environment – Prices increased over the course of last year and no month had over 63K. Mind you it does appear the DCB is over with the recent steep drop:
    Mortgage Aprrovals - BoE

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  • ontheotherhand says:

    You are right 51ck, another factor is needed in the regression model to achieve a better R squared. Probably real interest rates and repossessions. But do remember that it is a plot of transaction volumes against price movements six months later. Perhaps it is direction of change in volumes of transactions that is important. Looking at the chart in your post 8, transaction volumes were falling towards Dec ’08 and 6 months later we hit the price move floor, then volumes recovered in summer ’09 and six months later we got a mini recovery. Perhaps in 6 months time we will see negative prices again?

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