Boom? What boom?

Posted by: Jules Birch

01/02/2010

So is this a house price boom or not? It all depends whose figures you believe.

On Friday the Nationwide said prices rose by 1.2% in January and added that any sort of increase in February would see the annual rate of house price increases move back above 10% for the first time since May 2007. By any definition a rate of five times the general rate of inflation at a time when average real earnings are shrinking would appear to qualify as a boom.

On the same day the Land Registry announced that prices rose by just 0.1% in December and that the annual rate had moved back into positive territory for the first time since May 2008 with an increase of 2.5%. That doesn’t really sound like a boom - although the figures are a month older than the Nationwide’s. 

Except that this morning Hometrack said that house prices had seen a ‘sluggish start to the year’. The increase in January was just 0.1% and prices are still 1% below the level of a year ago. While the market information company said the percentage of the asking price being achieved rose again, other indicators pointed to a slowdown, with falls in the number of new buyers registering with agents and the number of sales being achieved and an increase in the average time homes are on the market. Boom? What boom?

So what’s going on? The obvious explanation lies in the differences between the way the different indices are compiled. Nationwide takes the prices of the properties it gives mortgages on and then applies adjustments to the mix. The Land Registry records the prices of all properties sold and compares the prices of the ones that have sold before to get an accurate comparison. Hometrack starts with a monthly survey of estate agents and surveyors to get their opinion on the achievable selling prices for all homes in their area and applies other weightings to get an index it says can show trends in areas with weak levels of market activity as well as strong.

That’s compounded by the low level of sales at the moment. Transactions in 2009 were down on 2008 and half the level seen in 2006 and 2007. That shortage of supply is one big reason why prices are rising (alot or not much depending on your point of view). However, with far fewer properties selling a strong rise or fall in one part of the market has a bigger effect on the national picture.

Hometrack’s survey shows that prices rose in just 7% of postcodes in January and that most of those were higher-priced areas in southern England. Evidence, says director of research Richard Donnell of a one-dimensional bounce in the market that depends on demand from people with little or no mortgage and has overstated the general health of the market.