Why You Should Take House Price Indexes From Lenders With A (Huge) Pinch Of Salt

Published on 9 January, 2014

So, Halifax have just released their house price index for December, and therefore 2013. It states a rise in house prices of 7.5% in 2013 and an average house price of £173,467, whereas Rightmove stated an average asking price of £246,000 in November 2013 and at Hatched, our average sales agreed were at £222,000 in 2013.

So why such a huge difference?

At Hatched, we cover the whole of England & Wales and agreed sales on over 1,200 properties in 2013. OK, so it might not be the volume of one of the lenders, but we are right at the ‘front-end’ of the property transaction.

We can tell months before a crash, that it will crash - we only have to look at ‘sales agreed’. And if our sales agreed falls (taking into account seasonal trends), then we know that demand is falling, and prices will then fall. Similarly, if we see sales agreed increasing, that means demand is increasing and therefore it is highly likely that prices will follow suit.

An example:

In September 2007, our sales dropped off a cliff compared to August 2007 - by around 60%, which was unusual for a September – traditionally one of the best months, with August traditionally being one of the poorer months. We instantly knew what was coming, so started to advise all of our clients of what we thought might be on the cards. We didn’t shout it from the roof tops, because that would have looked negative in a perceived positive market and could have affected our business. But we identified the 2008 crash 6 months before it became ‘common knowledge’. We started to see prices fall in September 2007, whereas Halifax’s price index still reported a rise in house prices in December 2007.

Similarly, sales jumped massively by 50% in April 2013, compared to a normal seasonal jump of around 10%, so we knew way back in April 2013, that the market was finally back on the up and up. (We knew it was simply 'on the turn' from hitting rock bottom as long ago as 2009 when we started selling around 50% of what we took on, compared to just 29% in 2008!)

And this is why estate agents are so important in the property market. I never understand why estate agents are rarely used for all this house price indexing. Criminal really – we are at the coalface of the industry, day in, day out, agreeing sales…

But, back to the question – why the huge difference? Let me put my case forward.

  • Lenders use data from ‘agreed mortgage advances’. Although there are a huge amount of advances made, these ‘advances’ can sometimes be 2 months after the sale was agreed. A lot can happen in 2 months in the market (just look at August to September 2007).
  • Lenders also don’t cover the whole of the market. Between the two main house price index providers, they probably don’t even cover one third of the market, so how can they give an accurate figure for the whole market?
  • These lenders may also deal with a different end of the mortgage market, i.e. the lower end, rather than dealing with the high net worth individuals
  • Lenders also aren’t able to accurately account for cash buyers, who generally buy at higher prices.
  • And lastly, the amount of business a lender does, may well differ geographically.

So, if you look at Rightmove’s ‘asking price’ index, they stated that their average asking price in November 2013 was £246,000.

Rightmove has well over 90% of properties for sale advertised, so this data is most certainly a fair representation of the market. However, please note, it is not ‘sales prices’  they quote, which are obviously different to asking prices.

But even bearing that in mind, there is absolutely no chance whatsoever, that agents are selling properties at around 40% less than the asking price (i.e. Halifax’s average price of £173k, to Rightmove’s asking price of £246k). That simply isn’t happening. And nor would sellers be accepting offers of 40% lower than the asking price!

Looking again at Hatched.co.uk stats, the properties we sell, sell at around 97.5% of asking price. Our average asking price today is £247,000 – which is almost identical to Rightmove’s asking price index.

So, it’s clear to me, based on the stats above, that the lenders' indexes are completely inaccurate, and should not be relied upon as an indicator of the housing market price rises!

With this in mind, you'll be pleased to hear, that we will be publishing our own findings right here each month, so you'll be safe in the knowledge that the figures you get from us, will be a fair reflection of the market with accurate, reliable and bang up-to-date housing market information!

Adam Day

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