One upbeat housing survey is not a recovery
Nationwide's report is just one of many indicators
Sunday 31 May 2009
Our troubles are over – a house price survey from Nationwide has found that property prices have gone up by 1.2 per cent in a month, a rise in two of the last three months. Suddenly, the lender says, the annual rate of decline as improved dramatically from -15 per cent to -11.3 per cent, so that the average home is worth over £2,000 more than it was four weeks ago. The talk is now of having found the bottom of the housing slump.
Well, that wasn't too bad after all. Roll on a soaring market and economic prosperity. Where's that credit card application gone?
But hang on, one stat does not a recovery make, especially in this industry, and a totally different report created from totally different numbers due out tomorrow is expected to show no change at all. So why the wildly varying results?
This year's property sales volumes are half what they are in a normal year and the market is so small that any change is going to show up as a huge fluctuation. Even Nationwide's own boffin said: "It is still too early to say that the market is turning definitively. During the downturn of the early 1990s, there were many months during which prices rose, only to fall back down again in subsequent periods."
It's important to note that each of these surveys is based on that single lender's numbers – just the properties on their own books – not the entire country. If we're not careful, we may be pinning our hopes of a recovery on the fact that someone has managed to shift their three-bed semi in Huddersfield.
Then there's the small problem that each survey measures different things, and woe betide you if you assumed that they were about the prices UK houses sell for. The Nationwide's monthly figures are based on their "lending data for properties at the post-survey approval stage" in the UK. Halifax gets its numbers in the same way, so comparing these two reports may be a good start as together they cover a sizeable chunk of the UK's mortgage market. That's approvals, mind. But the stats released by the Department for Communities and Local Government looks at mortgage completions, not all the mortgages approved.
At this stage, it all gets really sketchy. RICS – the Royal Institution of Chartered Surveyors – is quite a heavyweight, and its survey is the one the Bank of England considers when it decides interest rates. But its method is an odd one, drawing its conclusions by comparing the number of chartered surveyors who reported a rise in new buyer inquiries in any given month to the number who reported a fall. And Rightmove's numbers are even more fluffy, based on a monthly sample of the asking prices of the properties on its website, but only those in England and Wales.
Oh, and when any of them talk about "the greatest increase – or decrease – on record" bear in mind those records all started in different, and surprisingly recent, years. RICS has the longest running statistics, and they only go back to 1978.
Clearly trying to glean real meaning from a single lender's figures is like panning for gold in custard. It may all look promising but there's little of intrinsic value to get a grip on.
And if you are trying to pin down the price that your home will settle at, let's not forget that repossessions are on the up and unemployment will continue to rise, with a negative knock on effect that is yet to be felt in our bricks and mortar.
That said, if you really must have a positive spin, another chief economist – Simon Ward at Henderson Global Investors – is talking of the bottom of the trough, arguing that forced sales may not be as widespread as we once feared because of the historically low cost of borrowing.
"A key difference from prior busts is the low level of mortgage interest rates, which is allowing many struggling borrowers to continue to service their loans," he says. "The Council of Mortgage Lenders reported last week that repossessions and arrears cases rose by less than feared in the first quarter. The CML intends to revise down its earlier forecast of 75,000 repossessions in 2009. With less distressed selling, downward pressure on prices from rising supply is much less than in prior downturns. According to RICS, the number of unsold homes on the books of the average estate agent stood at 69 in April – far below peaks of 166 and 196 in the last two major housing downturns. Meanwhile, buyer inquiries have picked up recently."
Hold your nerve, ladies and gents, hold your nerve.
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