House Prices and the Media
David Lawrenson of private rent consultancy LettingFocus.com takes the papers to task over the way they report house prices.
House prices are the subject of regular conversations all around the UK.
We talk about it a lot and the government knows rising house prices makes much of the voting public “feel richer” and hence, possibly happier too and more inclined to vote for them. (How else could you explain the current round of mortgage subsidies, which, as many economists have pointed out, make little sense as an economic tool but plenty of sense politically for a government seeking re-election?)
Of course, most sections of the media love to report on house prices – with much of the media presenting rising house prices as a “good thing”.
But here is a problem.
Area Specifics
Journalists, bless them, given an 800 word piece to write, can barely give any real detail about how house prices are rising or falling in any specific area.
As a consequence, all too often, even in the so called “quality press” I see bland pronouncements such as: “London house prices have risen 8% since last year”, or that “Welsh houses prices have not budged for 5 years”.
The problem is these are ludicrous generalisations.
Take London for instance.
In the capital, the average house price figure is hugely distorted by the massive rises in prices of property in so called “prime” hotspots like Kensington and Chelsea, where foreign buyers (enjoying a period of favourable exchange rates) have been gobbling up London property as a safe haven bet. (Safe haven from tax in their home countries or safe haven from someone dropping a bomb on their home back home – you decide).
Because these top end properties were already very expensive and because they have also risen quite a lot recently, it does not take a lot of these units to have a huge impact on the “average” house price.
Averages
After all “an average”, as any Year 7 school kid ought to be able to tell you, is defined as ” the result obtained by adding several quantities together and then dividing this total by the number of quantities; the mean.”
So, why does this matter?
Well, the trouble is that the average reader, soaking up his Sunday paper in an outer suburb of London, thinks that his house price should also have risen by say, 8% in the last year. (I don’t actually know how much they have gone up in the last year – it is irrelevant for my work, as this average is a meaningless figure).
Ignoring the advice of the wise estate agents, he listens to the type of estate agent who is desperate for one more property to put in his window and he duly puts his house on the market at a price 8% more than a similar one down the road sold for, last year.
Unsold
Two years later and his house is still sitting and waiting for a buyer or even for some viewings, (whilst more sensible vendors have sold their houses and moved on).
In our part of London (outer suburb south east, since you asked) the reality is that detached and semi-detached four and five bedroom houses, say over £600K, have barely budged in price for 5 years whilst smaller houses and flats have recently and suddenly “caught fire” and seen price rises of about 5% in the last year. (This could be the impact of the Funding for Lending scheme on the bottom end of the market).
You don’t need an estate agent to tell you this, though of course they can and will, if they have figured out that you are smart.
Tools on Rightmove
No, you can see it for yourself using the likes of Rightmove and Zoopla – where there are useful charting graphic tools where you see how house prices have moved for any postcode, for different types of houses (detached, semis, terraced or flats) and over different periods of time.
Whether we are advising investors or advising people buying for themselves to live in; we always tell people to use these sorts of tools and to ignore the papers and their bland statements.
However, don’t blame the journalists or the editors. It is not their fault that most readers cannot cope with a piece that is longer than 800 words.
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