Property Crumble

Nationwide's Chief Economist

The Nationwide’s UK property price index turned negative at the end of January and early February pricking the balloon of positive property price news.

Last month we reported diverging results from the two key UK indices – with Nationwide showing property price growth and Halifax showing a decline.

The fact that Nationwide sources data from an earlier period suggests that Halifax will also produce negative growth figures for UK property in a couple of weeks time.

Once again, the fact that the market turned negative in January was disguised by the indices which delivered a mixed message last month.

Therefore, the indices continue to provide a backward view on property prices and little basis for projecting forward growth.

Why do we say this? Well, Martin Gahbauer, Nationwide’s Chief Economist claims the fall in the February figures was due to the icy weather and the ending of the stamp duty incentive on 31st December.

What is interesting about this comment is that events that took place at the end of December and early January are cited as the reason for the falling in the February price indices. Equally, wouldn’t poor weather normally reduce sales volumes rather than reduce property prices? The fact that prices fall when volume falls suggest that sellers are willing to reduce prices and that this may continue even when the weather improves.

This tells us that the indices are effectively reporting on the market of 2 months ago – and not on the current state of affair.

It would be better then to say that prices have been falling since the end of December 2009 and as the talk of interest rate rises increases and uncertainty about an election looms, are there any brave voices willing to predict a pick up in the Spring?

House Price Growth Slows says FT (4th Feb) vs House Prices Rise Sharply in January says FT (29th Jan) just 6 days earlier.

How did the FT do it? On the 4th of Feb they told us that ‘house prices rose at their slowest pace in six months in January according to a closely watched index (Halifax)… adding to signs that the rapid pace of recovery may be slowing’

Yet only a week before on 29th Jan the FT told us ‘UK house prices posted strong gains in January according to a closely watched index‘ (Nationwide).

So what is going on?

Well, one closely watched index samples from late December to late January and reported in January – that said house prices were going up.

The other closely watched index, reporting in early Feb, measured price changes in January only – not December – and that told us the price rises were slowing down and the prospects looked weak.

The trouble is that the FT didn’t clearly distinguish one index from another and told us that both indices are ‘closely watched’.

This  reporting might be acceptable on a cheap newspaper, but its appearance on a quality financial paper suggests either that the we’ve all grown rather bored of property prices indices and just reprint the press releases or the press releases are able to baffle the bright journalists at top business newspapers.

The interesting story, of course,  is not the latest report on house prices, but the volatility of the different indices. Typically, when the market is moving in the same direction, the indices are either both positive or both negative.

What is new is that we have a marketin which the indices are going in different directions.

This index conflict could be down to either

a) each index measures a similar sample of the market (or it is able to statistically adjust the figures to ensure it is not biased) in which case, the difference must be a result of the positive growth index taking an earlier sample and the negative index taking a later sample.,

If this is the case, then we must conclude the UK property market has turned negative in early Jan.

or

b) the positive index is measuring the sector of the UK property market that is making sales and achieving better sales than last year whilst the negative index shows that there are other parts of the market that are falling.

Or possible, a combination of the two.

Who knows, but it is instructive nevertheless to know that what we hear about property is simply regurgitated without any critical analysis or thinking.

And that property price indices are most interesting when the disagree.

Next month, we shall watch carefully to see if either index has switch from positive to negative (or vice versa) or if they continue to disagree…. from which we should be able to conclude that either the market has turned or that each index samples a different sector of the market.

Scary news reported today on CNN Money that job loses in the US may have been 800,000 higher than previously estimated.

So, instead of 7.2m jobs lost, the figure is now 8m.

It is called a revision and suggests that the figures we read about in the news are not only out of date by the time we read them, but that what we experience ourselves is a more accurate indicator much of the time.

For most of 2009, on the street, US and UK people keenly felt the loss or risk of loss of jobs. The figures in both countries, but especially in the UK, much lower than expected.

Nevertheless, we are beginning to get explanations for this starting with the revised calculations in the US and predictions that the UK’s unemployment rate will rise from 7.9% to 9%, despite the country narrowly escaping recession.

Either way, the higher ‘actual’ or delayed job figures is a clear downward indicator for property prices in the US and UK.