Assetz® News - UK House Prices - Current Data, Not What You Would Expect

UK House Prices - Current Data, Not What You Would Expect

4th June 2008 |

From all the news stories on house prices recently you would expect UK houses were in freefall, but they are not, far from it, just look at the chart below of average house prices in the UK:

Assetz house price watch data

The above chart shows the 3 month average house price from the FT, Nationwide, Halifax, DCLG and RightMove - it uses the most up to date data available from all of these sources. We ahve used 3 month moving averages to take all the volatility that we have seen recently out of the data and show real quarterly trends. The chart below shows the individual data and shows how transactions dependent on mortgages with Nationwide and Halifax are diverging from the broader market of both mortgaged and non-mortgaged purchases indicated by land registry/ FT/ DCLG. It also shows how Rightmove asking prices are clearly still robust and at the highest level ever recorded this month !

Thanks to HPUK for the chart

This is not exactly unexpected as it is those people who are typical borrowers from Nationwide and Halifax and dependent on a mortgage (obviously) that are using the bank's profiteering margin on their mortgage rates (high rates) as an excuse to haggle down property prices by a few percent in compensation. Hence these two indices show a more exaggerated change in pricing. For another interesting point, take the two figures announced last week, Nationwide reported a 2.5% drop for the month and Land Registry 0.2% (although still slightly lagged behind Nationwide data). What is interesting however is Rightmove asking price data recorded the highest house price it had ever seen two weeks ago.

What does all of this mean? Certainly vendors are bullish, perhaps they are raising prices slightly to take into account that the buyers may haggle. If this is the case then buyers can now get 5% off a house asking price (a greater reduction than historic averages) without affecting the resulting net house price a vendor was going to accept compared to normal.

What all of these charts hide is what's going on on the margins of the market. In the super prime sector (houses bought for cash typically above £7 million) prices are up 4% in the first quarter alone. In the distressed market sector buyers can achieve 25 to 30% off current valuations. Both of these however are low-volume transactions compared to the mass market. In addition data for specific streets, towns and regions all have their own story to tell.

Now for an interesting chart - does this look like house prices have got carried away compared with the late 80's ?

Thanks to HPUK for the chart

I have used Financial Times HPI data as it is long term and all of market, not just mortgaged property, and a log scale to make sure the power of compound growth does not distort the data (why ? because logarithmic rather than linear charts show long term continuous steady growth as a straight but sloping line, whilst escalating growth rates show up as a rising curve - it is easier to spot if growth is getting carried away in an investment - clearly not above.)

OK, I admit it, I am a chartist - I look at technical analysis charts as a window into peoples current psychology - a mass distillation of all the information in the market and people's current interpretation of that data. I also spend a lot of time talking with people at the sharp end in order not to get information second or third hand or worse - this type of data helps confirm chart indications. Estate agents and developers are reporting huge pent-up demand from first-time buyers to me, caused by more difficult mortgage availability and higher deposit requirements - the demand hasn't gone away, buyers are still desperate for an opportunity to buy. First-time buyers are just waiting for slightly better deposit requirements from lenders and are getting more and more upset about rapidly escalating rents - or so they tell me. Our property investors survey last week shows 99.3% of you are planning to buy more property over the next 12 months. Hardly surprising given the bargains available, if a little limited, if you look hard enough.

And now for something that some people disagree with but haven't thought through properly :

We have much greater demand for housing in the UK than supply. Some misinformed commentators have suggested that house builders having unsold stock and a general slowdown in transaction levels indicates that demand for housing never was greater than the supply and that the supply demand imbalance argument is incorrect. This is completely missing the point and is disingenuous. The housing market, where people live, is not just the purchase market but also the rental market - both are means to the same end - of having somewhere to live. If anybody doubts demand is greater than supply in the housing market as a whole just look at the effect upon rents (shooting up at 3 to 5 times the rate of inflation) as all of the excess housing demand moves temporarily away from purchasing onto renting.

In the end demand is clearly greater than supply here in the UK and house prices will continue onwards and upwards over the years to come. Later this year we expect to see strength in house price indices as a whole that will surprise most. This will be helped by developers cancelling the majority of their schemes going forwards for the time being and making the supply problem even worse hence helping drive up prices. In addition First Time Buyers will re-enter the market as mortgages improve slightly.

Conclusion:

We are in a period of weakness, not a crash, and vendors are more easily negotiated with, provided they are a forced seller. Continue to add to your portfolio by buying from motivated sellers, whilst there is weakness, would be my recommendation. To register interest in buying distressed property of all types please review this web page and enquire using the link on that page.

Stuart Law