Regional Changes in House Prices and Predicting the Future of House Prices
David Lawrenson of LettingFocus.com looks at a useful house price trend interactive chart produced by the BBC, but cautions against jumping to conclusions from limited data.
Regional Changes in House Prices and Predicting the Future of House Prices
I am returning to the subject of house prices.
This week, the BBC published a neat interactive map showing that in 58% of wards in England and Wales house prices were down in real terms, (after stripping out the effect of the rate of consumer general inflation), on what they were in 2007.
This will be a surprise to many living in the bubble of the capital where some London based journalists and housing activists seem to think that life stops outside the M25.
Very broadly, the East and South East of England generally have seen property prices rising by more than inflation over this time, whilst the North and West of England and much of Wales have seen them fall.
This points to the need to carefully consider where you buy and what type of property you buy too. (Generally, houses have done better than flats, so the type of property is important to consider too – more on that in a moment).
I often hear of supposed gurus telling would-be landlords to buy into their pet scheme in the north because the rental yields are so great there. But I always caution that great yields are not so great when the actual price of the property is falling over time.
And so, a lot of the consultancy I do with people involves helping them to figure out, using intelligent tools and research (which we help them with), whether one area will outperform another over time in terms of capital growth as well as rent levels.
Some Micro Areas Buck Regional Trends
What is interesting from the interactive chart is that even in the midst of parts of England and Wales where house prices have risen much faster than inflation, there are wards where house prices have fallen in real terms.
Taking a few random areas, St Radigands in Dover has seen prices fall by 16% in real terms, Badgers Mount in Sevenoaks has seen prices fall by 15% and Aylesbury Vale in Bucks has seen prices fall by a whopping 35%. All these wards are surrounded by neighbouring wards where house prices have gone up in real terms.
Conversely, in parts of the North of England and Wales, amid areas where house prices have fallen in real terms, you can find many wards that have seen strong price growth.
So why is this happening? How can we explain what is happening at the micro level in Aylesbury Vale, Badgers Mount and St Radigands?
Well, in the case of St Radigands, Dover, (because I’m from nearby), I know that local problems with crime in a mainly council estate area has been a key factor. In the case of Aylesbury Vale, I guess worries about the route of HS2 may be the cause. At Badgers Mount I simply don’t know why prices have fallen in real terms, because I don’t know the area well. (If you know why, please tell me!).
Mix of Properties May Have Shifted
But it could be that there has been a change in the mix of properties in these areas. So, if these areas in 2007 were full of large detached houses and in the intervening years, a lot of smaller houses were built, this would skew things a lot and make it look like houses prices have fallen. They haven’t – all that may have happened is that the mix of properties has altered, thus driving down the average transaction price. The prices of the detached properties may not have moved at all.
To get a better idea of what is really happening for different property types, a good place to look is Rightmove’s house price comparison charts where you can separate out what is happening over time by four property types – so in a particular postcode, you can see what is happening for flats, terraces, semidetached and detached properties. Using the price comparison charts at Rightmove is also useful because it shows a time series too, so, any random, statistical single-month aberration that could explain the BBC charts, can be put into a longer perspective.
The BBC interactive charts are here:
http://www.bbc.co.uk/news/business-41582755
A link to the Rightmove price comparison table, in this case for detached properties for the postcode HP18, (which includes Aylesbury Vale) is shown here:
So, the message is, when looking at past house price data, do your research and dig under the figures – and get to know your area well. Has the housing mix changed? Is the data skewed by a single month or months, in which only a few houses were sold, (i.e. a small statistically insignificant sample)?
Thinking about where house prices and rents will be headed in the future for any area involves more research still – this is an area of work we can help with.
Macro Trends in House Prices – The Big Picture
For the broad macro picture effecting UK house prices in general, readers should read my past blogs, see links below, and keep in mind that the key determinants of house prices include:
- The level and distribution of household after-tax incomes
- The size and make up (age, sex) of the population and trends in household size, including migration rates
- Expectations about house price rises
- Employment levels and the type of employment
- Mortgage availability including interest rate levels
- Government subsidies – e.g. Help to Buy and taxation levels, especially the taxation of property and level of government house building
- Exchange rates
- Level of confidence in the UK economy both here and abroad
- The type of and amount of supply of property and the extent to which it meets local needs
My past blogs, which are still relevant are as follows…
…From July 2017, this blog post looks at house prices post-Brexit:
https://www.lettingfocus.com/blogs/2017/07/house-prices-post-brexit/
…From January 2015, this blog post looks at a wider range of demographic factors:
https://www.lettingfocus.com/blogs/2015/01/deflation-house-prices-population/
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With the Brexit, mess predicting future prices of property in the UK is like predicting the value of Bitcoin. They will all increase but with no actual value.