What's really going on in the housing market? We show you how to find out.
It's the number one question on every mortgage borrower and homebuyer's lips: "Is there going to be a house price crash?"
If you don't know the answer, then I bet you have an opinion. But ask yourself this: is your opinion based on fact - or feeling?
I'm sure that, at dinner parties up and down the country, homeowners are desperately trying to stay positive. "We live on a small island," I can imagine them saying to one another as they gulp down large glasses of wine. "It's a fundamental question of demand and supply. Of course there's not going to be a crash."
Meanwhile, first-time buyers are holding hands and gazing shyly into each other's eyes: "It's a hovel in the ground," they're saying, "but maybe soon, with a bit of luck and a global economic crisis, we will actually be able to afford to buy it!"
A more scientific way to figure out what's really going on with house prices would be to look at recent movements in house prices, as shown by a house price index. Compiled by a wide variety of different bodies involved in the homebuying process (the Government, mortgage lenders, property websites, surveyors, you name it), these indices claim to reveal how house prices have changed on a monthly and yearly basis.
Sorry, hold on, did I say scientific? The problem with these indices - and the reason you can't rely on them when making what will probably be the biggest financial decision of your life - is that they can't agree on what's happening. In fact, the disparity between different indices is so great you could be forgiven for wondering whether they are analysing prices in the same country.
For example, in October, Rightmove published its monthly house price index showing that the average asking price rose by 2.7%. A few days later, Nationwide published its monthly house price index showing that house prices rose 1.1% in October, compared to just 0.7% in September. While the Halifax House Price Index shows prices fell by 0.5% in October.
And it's not just changes in trends. They also differ wildly on the average price of a property, ranging from £186,044 to £241,642 in October.
Index | Average price in October | Monthly change since September | Change since October 2006 |
|---|---|---|---|
Rightmove | £241,642 | 2.7% | 10.4 |
Nationwide | £186,044 | 1.1% | 9.7% |
Halifax | £197,248 | -0.5% | 8.9% |
House price indices can, however, be a helpful tool for property hunters and homeowners. You just need to know how to use them.
Why do house price indices have different conclusions?
The most important thing to understand is that each index collects data from a different stage in the homebuying process. So, for example, Rightmove looks at asking prices, while the Land Registry publishes data about actual house prices sold in a particular area.
There are advantages and disadvantages to each index, and some are more accurate representations of the market than others, as this table shows.
Stage | Index publisher | What is it? | Advantages | Disadvantages |
|---|---|---|---|---|
Asking price | UK's largest property search engine | Data is based on asking prices of around 75% of properties on the market- so immediately reflects changes in the market and sellers' level of confidence | Data is based on asking prices - so may not accurately represent the price a property is sold for | |
Survey | Surveyors' trade body | Data demonstrates surveyors' opinions about house price trends. Surveyors carry out valuations for mortgage lenders and are experts at judging a property's value. | Based solely on surveyors' opinions, there is no hard evidence of prices paid | |
Survey | Company which collects valuation data | Data is based on the valuations of properties that surveyors submit to lenders, so reflects their expert judgment | Data is not based on the transaction, so again, there is no hard evidence of prices paid | |
Mortgage Offer | UK's largest mortgage lender | Data is based on agreed sale prices, so accurately represents the price a property is sold for | Sales might not go through to completion. Only includes properties Halifax has lent on. | |
Mortgage Offer | UK's biggest building society | Data is based on agreed sale prices, so accurately represents the price a property is sold for | Sales might not go through to completion. Only includes properties Nationwide has lent on. | |
Mortgage Offer | Government department | Data is collected from around 50 mortgage lenders, so likely to be the most accurate representation of agreed sale prices | Published two months after the data is received, so does not give an accurate picture of the effects of recent changes | |
Completion of sale | Government body | Data is based on sold property prices, so accurate | As most sales take two to three months to complete, data is unlikely to reflect current situation |
It is really only by keeping an eye on data from all the different indices that you can get a true sense of what is going on in the housing market, at all the different stages.
Even then, however, I'd take them with a pinch of salt. Most of these indices are `seasonally adjusted', mainly because the compilers are interested in underlying trends - they don't like to see their perfect growth charts suddenly dip just because it's Christmas and no one has time to buy and sell their homes. This means if you are buying a property during what is traditionally seen as `a quiet period' (such as mid-Summer or early January), the information shown in an index may not reflect the true conditions of the market.
What's more, most indices look at national trends, and only give a regional breakdown at the most. If you really want to know what is happening to house prices on your street or in the area you want to buy, the best index to look at is not published in a document or heralded with predictions of doom and gloom in the media. It is, however, very easy to find. Simply walk down your local high street - and look periodically in your local estate agent's window.
That's not to say house price indices don't have their moments. Whether they predict a boom or a bust, are wildly inaccurate or spot on, there's certainly one use they're always good for. That's right: showing off at pretentious dinner parties...
More: House Prices Look Surprisingly Strong | Why I Don't Trust House Price Indices
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