15 Aug 2010
Reading in between the lines: House prices
House prices; what’s all the media hype over?
News for the property market this week has been all bad. The Royal Institute of Chartered Surveyors (RICS) reports house prices are falling. Its gloomy predictions are that a continued lack of mortgage finance will slow the market for up to two years. A recent report from the National Institute of Economic and Social Research echoes the RICS findings, forecasting a fall in house prices next year and estimating 2015 prices to be lower in real terms than now. The government’s own house price index published by the Department for Communities and Local Government (DCLG) has also been making headlines with reports that the market is cooling off.
So it’s clear cut then, house prices are falling?
In short: no. Last week's headlines paint a different story. Online portals such as Zoopla clocked a record number of leads last week. Lloyds Bank says prices will be static this year but will rise by 3% in 2011. In direct contradiction to some other data released, the Halifax actually reported a rise in house prices of 0.6% in July and Nationwide are still publicly confident that prices are rising. Another gleaming light in the doom of this week’s headlines is the underlying affordability due to low interest rates. Russell Quirk from online estate agency emoov.co.uk summarises these conflicting views:“The indices are divided as are the experts”.
Confused?
Welcome to the club. Do we believe the sorry story painted by the media, or allow ourselves to be buoyed by the more positive outlooks of other reports? It’s important to consider these matters in context; media headlines are blinkered – they are written to sell newspapers and present a particular version of events, or facts which can reflect the views of the paper or the editor. The leverage that the media can have over the British public was highlighted during the election campaign earlier this year when the Independent ran the advertisement “Rupert Murdoch won’t decide this election. You will”. My point is that the media cannot always be trusted to give an informed view on real state of market. If we really want to find out what’s happening to our bricks and mortar, the key is to look at the bigger picture.
So what’s this bigger picture you mention?
What the newspapers don’t take into account with their sensationalist headlines is regional variance. National statistics are no use to homeowners or buyers wanting to know what the market is doing in their area. The North is experiencing much slower growth in house prices than London and the South, so your area may be better (or indeed worse!) than the media would have you believe. Furthermore you will find vast differentiation within regions themselves, for example in Kent the average house price following the 1st quarter of 2010 was up +18.65% compared to the same period one year ago. However closer examination on how this average is reached would show that districts such as Sevenoaks actually saw a year on year growth of +25.59%, whilst others such as Thanet had an annual change of +9.75%. National statistics are not an accurate reflection of the market in your local area. Fact.
So house prices are going up in some places?
You’ve got it! The DCLG’s regional house price trends show strongest growth in London with the South East coming a close second. The shortage of residential homes in the UK will continue to help drive the market.
So despite what the papers say, it is a good time to buy?
If you’re buying a good property in a good location then yes. Absolutely. Unlike, say, a new car which loses 35% of its value as soon as you drive it off the forecourt, evidence shows that over the years property does retain its value. However, as well as being a financial asset, a house first and foremost provides a roof over your head and a home for your family. One of the most important factors to consider when buying a new home is whether you like it (and of course whether you can afford it!). After all, you’re the one who’ll live there! There’s no escaping the fact the property is a good, long term investment, but buying property isn’t just about making a quick buck, it’s also about owning a home long term.
