Property Crumble

UK Property Prices - Slowly Sliding?

Nationwide’s index reported a modest increase in UK property prices in the February to March 2010 period.

At the same time, the US Schiller index reported weak US property prices amid growing consumer confidence.

The UK’s chancellor also announce an attempt to reflate the UK property bubble by suspending stamp duty for first time buyers on properties up to £250,000.

So what is happening?

Firstly, property prices are not collapsing or falling significantly (as per the index) however, the  number of mortgage approvals is still very low and there are clear suggestions that only the ‘best in the road’ properties are selling with all other less attractive options unable to obtain a buyer.

This flight to quality means that the indices will in effect compare the prices of the weaker properties (which sold in a strong market) with the stronger properties which are still selling in a weak market (unlike their weaker cousins).

What do we mean by weak property?

Well, simply properties that need work doing to them – or lack basics such as double glazing or where the wiring is a bit old, or it may simply by that the stronger properties are being sold with display furniture from the developer and so forth.

All of these subtleties are lost by the indices and explain why the indices don’t drop as much as it feels they ought to in a weak market. Or, why the indices don’t manage to reflect the real experience of property buyers and sellers.

Secondly, the US is reporting, at the end of march, more positive news on consumer confidence with an expecting increase in employment – however, the US property price forecasts remain on the slightly negative side.

This suggests that we could see growing consumer confidence coupled with stagnant or weak house prices. And, if the much anticipated inflationary pressures get stoked in either the UK or US, then house prices will fall in real terms.

Halifax Property Price Index comes out on top

We now have the two main indices – Nationwide and Halifax – giving the same readings – and that is of on-going weakness in the UK property markets.

There was a thought that given the diverging results of these two indices in January, that they must be measuring different sectors of the market.

However, now that are both delivering the same results, we can reasonably assume that the difference was the sample period – and that the UK property prices turned negative around the end of December 2009 / beginning of January 2010.

Equally, the property price falls are now in line with the economic fundamentals of weak employment, negative growth in disposable income and weak mortgage availability.

So, will property price pick up in the Spring? This is unlikely, not least because elections add to the feeling of uncertainty and won’t help chains of buyers and sellers to have the confidence to complete.

Nevertheless, in these recent results the Halifax index has shown that it is more up-to-date, as it reported the Dec / Jan price fall at the beginning of February, whilst Nationwide didn’t report a fall until the end of February.

So, to see if there is any change of direction in spring property prices, we need to follow the Halifax index.

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?