Estate agents will be telling all with ears to hear that the Exeter housing market is open for business, but their words may well turn out to be a false dawn
House prices are meaningless without meaningful levels of housing transactions
We believe that now is a dangerous time to either be buying or selling a home, because there is currently no reliable indicator of house prices. The proof point for house prices is the level of housing transactions, without a firm foundation of housing transactions house prices are as secure as houses built on sand.
The Land Registry, which in my view is the source of truth for house prices, agrees, reporting on 20th May that ‘following the publication of the March index on 20 May, the UK HPI has been suspended until further notice’
House prices suspended until further notice
If those with access to all the data are not confident in reporting house prices, how can individual homeowners be sure they are achieving the best price?
If a house is for sale but doesn’t sell, does it have a price?
We have all seen house price survey after house price survey telling us the market is firm, but outside of the Land Registry House Price Index it is perhaps a little known fact that the other house price indices are not actually based on house prices at all.
The Rightmove House Price Index is based on asking prices of around 200,000 of the homes listed on its website for sale. At first glance 200,000 seems like a large number, but in the context of around 28 million homes across the UK it is less than 1% of homes, should we not also be considering the other 99%?
The problem with asking prices is that, as we are all aware, what you ask for is not always what you get. You may find your happy in the asking price, but you may be unhappy with the actual sale price.
The well-known Halifax and Nationwide indices sandwich the Land Registry Gold Standard, but once again neither house price index is actually based on house prices.
Both the Halifax and Nationwide indices are based on their own mortgage approval data – which means that they have made a mortgage offer to their customer, it does not mean that the customer has bought a home nor that the house price has been confirmed. Both also base their house price indices on their own mortgage approval data and therefore do not, like the Land Registry, present a whole-of-market picture.
Mortgage offers typically last for six months and a mortgage approved (or offered) today typically leads to a housing transaction in three months’ time. A lot can happen in 3-6 months, we only need to look back to 1 January 2020 to see that.
On the 1st January few predicted that, by the 31 March, we would be in lockdown or that the Government would be paying private sector employees up to 80% of their wages not to be made redundant.
It is not an understatement to say that in the last six months the world has changed and I do not believe that it is unreasonable to suggest that a homebuyer who had a mortgage approved in January may wish to re-negotiate the price of the home they may still be in the process of buying today.
Even when house price data is available it tells us what has been, not what will be
Even if we discount the NHPHPIs (non-house price house price indices) the actual house price indices tell us what has been not what will be; we usually buy a home today looking forward to the future not reminiscing about the past.
It may well be good news that house prices have apparently increased over the last 12 months, but with more than 1 in 4 UK workers on furlough today and question marks over how many of those will return to their jobs is the past a reliable predictor of the future?
Lockdown has inflicted severe and clearly visible damage to the UK housing market, but fear of unemployment is the housing market’s silent assassin. If you are worried that you may lose your job, you do not make a big-ticket purchase like a house and basic economic theory tells us that if demand falls, prices follow.
At best house prices are on hold so you have nothing to lose by staying put. At worst, prices may follow the trajectory of other more liquid asset classes; introducing volatility and price transparency not seen since the depths of the financial crisis.
A case of Buyer and seller beware (caveat emptor and caveat venditor)
We are all aware of the the phrase caveat emptor or buyer beware, but in these times it is also wise in our view for the seller to beware to (caveat venditor). Do not be rushed into making big decisions, if you find the right buyer for your home, you do not need to rush, once they have purchased your home they are not likely to move for another 10-15 years, so taking a few more weeks to secure the next 15 years seems a small price to pay in these uncertain times.