Human nature causes blind spot in interpretation of property indicies
Tuesday, July 05, 2011 by Ed Mead
Dubious property indices can show a coherent story if you look hard enough, despite national stats being of little use as the London bias often causes unhelpful distortions. Looking at Land Registry figures shows that everywhere in the UK house prices are falling bar Greater London where they’re rising. It also shows volumes elsewhere falling whilst rising in London, albeit to still pitiful levels compared to early 2000s.
I’ve always been somewhat dismissive of Rightmove stats insofar as whenever Miles Shipside uses them he should say ASKING PRICES as I feel him talking about “Prices” is mildly misleading. Rightmove’s average asking price in England and Wales is £240k, whilst the average sale price according to Land Registry is £161k, so what does that tell you.
But the asking price trends do help determine why volumes are doing what they’re doing. Rightmove shows national asking prices rising whilst real prices and volumes fall. So the story is obvious, ask less and you’ll sell, more people will be able to move and perhaps UK Property PLC can start to function again. If you look at central London, in Kensington and Chelsea, Rightmove says asking prices are down 4.4%, yet actual prices are up 6.2% with volumes up over 20% in the last 7 months. Clearly asking prices were too high, and the fact that actual prices are still rising shows just how much too high they were. The evidence on volumes is even more compelling; nationally as asking prices have gone up since Dec 10 by over 10% volumes have declined by more than 20%.
In this new low interest rate paradigm such trends can’t be ignored and show clearly that correct pricing yields results. As I write this we’ve had four sealed bid sales in the last three working days and three of those four were where prices had been reduced, and as a result achieved prices surpassed expectations.
This summer is already being characterized by desperate [for stock] agents touting other agents’ instructions by promising they can do what the other can’t. As a seller, what are you going to do, lower your asking price to a realistic level, or give it to someone else who’ll keep your dream alive, even if it costs you months of wasted time. Reading this it’s becoming clearer what you need to be doing in this new era to get the job done, but I fear human nature will get in the way.