the end of the world as we know it (many thanks, R.E.M.)?
Last week I spent quite a bit of time with two economists that I respect enormously, and one topic of conversation was the state of the economy and the indicators not just from the UK, but Europe and America too. Over the next few weeks I hope to explore a number of these, and today's offering is UK house prices.
As many readers know, I am not the greatest fan of media presentation of statistics and their interpretation, but on one topic I am nothing to my husband who will happily rant on the misleading and contradictory indicators published on house prices. This is much in the news currently as Nationwide - the latest to publish their monthly overview of the market - signal a price fall of 2.5% in May (interesting as the month doesn't end until Saturday) and somewhere deep in the small print they point out that this is a seasonally adjusted figure. The Daily Telegraph have picked up this story and run with it, pointing out that taking out the seasonal adjustment (which they seem to think is cheating anyway) the actual fall was 2.8% - a whole 12% different!!
The BBC have also picked up the story as you would expect and have also published a series of expert reactions to the figures and to the current market as a whole. It is particularly interesting to look at the different views of various players in this field - lenders, estate agents, government departments and professional bodies - definitely worth a read!
One interesting aspect of the coverage in the Telegraph is to point out how the statistics actually differ that are being offered. Estate agency chains can look at either the prices in their windows or the home valuations for mortgage approvals (though it is not totally clear how they deal with retention issues) - the Nationwide use the latter. But neither of these are exactly what a piece of real estate actually sells for - so selling values are best observed though the figures produced by the Land Registry. The Royal Institute of Chartered Surveyors look in addition at transaction volumes to see how the market is moving. No danger of comparing like with like then, unless you keep an eye on longitudinal data from one or other source!
It seems fairly clear from all sources that house prices are falling on average and are likely to continue to fall for a while yet. There could well be local and regional variations, which will mean that if you look at a particular area, you might be able to disprove the trend - our old house and its neighbours seems to have remained static in value for the past 4 years.
However I also seem to remember that for the past 7 to 8 years, there have been rumblings about house price inflation being too great and how impossible things are for first time buyers and how the bubble will surely break sometime soon and how driving the economy through house prices is a bad thing and how house prices will remain high as demand outstrips supply. Well demand still outstrips supply (I assume people haven't just evaporated and there haven't been that many houses built in the past 5 years), and things may get more affordable for first time buyers, but the credit crunch means they also have to have a chunk of savings for a hefty deposit. Of course with low interest rates, their savings aren't increasing very fast, and while the City has had billions in bonus payments, most share based investment schemes seem to have done badly recently, so that deposit is just as hard to develop.
The market is changing, that is for sure. Take your pick of the pundits, throw a dice, cut a pack of cards - none of them really know how things are going to develop, as the wider economy is in a very strange place. Me? I'm investing in gold!