Compare like with like when evaluating different areas and house price trends over time

Make sure you are comparing like with like when you are looking at the performance of different areas in terms of property prices over time.

COMPARE LIKE WITH LIKE WHEN EVALUATING DIFFERENT AREAS AND HOUSE PRICE TRENDS OVER TIME

You often hear people saying how much their property has gone up over time and how it is worth x% more or whatever.

But that may not be strictly true.

The houses of today are clearly much better than they were 20, 40 or 60 years ago.

Go back 50 years and most properties would not have double glazing, many did not have central heating even and the kitchens and bathrooms were very basic. The houses of then are nothing like as comfortable as the houses we see today, having usually had a lot of money spent on them since – some for improvement, some for added value.

So, comparing a house or flat price with 60 years ago is a bit like comparing apples and bananas. OK, they are both fruits, but they are very different.

And also this is true when looking at house price trends over time by area.

On Rightmove and many other sites, you can track how house prices have changed over time. You can bung in a postcode in a box or town and pick flats, terraces, semi detached or detached houses and choose a time frame and off you go. A nice little chart will come back showing, for example, the trend over say seven years for say, terraced houses for that postcode month by month. (The information is compiled from data from the land registry for completed housing transactions).

On Rightmove, it also will show many transactions completed in that month, which is also useful, because in months which were very quiet for house sales, like March to July 2020, the low numbers of transactions will make the average house price figure have less meaning, be less statistically valid.

In fact, you are best off looking at a trend over a year or so, as the average house prices will tend to jump about a lot anyway, even when there has been a lot of transactions.

But there is more to watch out for to.

If an area has had a lot of new housing stock built over the time period you are looking at and if that housing is also lot grander than what was there in that area before, this can make price comparisons over time of less use too.

So, take the area around Vauxhall and Waterloo in London, as an example.

This area has seen an enormous number of relatively upmarket new build flats built over the last twenty years. (Actually, far too many have been built depressing the prices as the market has turned recently).

But looking at say the time period from 15 years ago to 5 years ago, these flats were still getting good prices and were much more upmarket than older flats generally in the area.

This has changed the nature of the “average” flat in the area – and it means that when you are looking at a period from 15 to 5 years ago, a lot of the growth in house (or in this case, flat) prices has probably mostly been due to the new stock being better than what was there before. Or to put it another way, you are not comparing like with like, you may be comparing apples with bananas again!

Of course, of far more importance for any investor or landlord is what will happen in an area in the future and what sort of property you should you be buying now, either to let or to do up.

And this is what we spend a lot of time helping people with as part of our consultancy business. Get in touch.

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