Don’t hold your breath for house price rises

Homeowners are being warned that house prices still have a way to fall, in spite of tentative signs that the property market may be stabilising.

Halifax sparked a burst of excitement last week when it reported that house prices had risen in January, albeit by just 1.9 per cent, compared with December.

Since then,, the property search site, has reported a slight recovery in asking prices in recent weeks, and a number of estate agents have said they are receiving higher numbers of buyer inquiries.

But economists are keen to emphasise that a recovery in house prices is not yet on the horizon. “Even in the downturn in the 1990s, there were occasional months when prices rose,” says Martin Ellis, housing economist at Halifax. “We don’t want to encourage people to get too excited. We still expect a difficult year – unemployment is rising sharply and people will remain cautious about property prices.”

Most house price data suggest prices are still tumbling. The FT House Price Index this week showed a 1.4 per cent drop in average prices in January, compared with December, while Nationwide recorded a decline of 1.3 per cent.

Fionnuala Earley, chief economist at Nationwide, says there is nothing to suggest house prices are recovering at the rate reported by Halifax.

“There has been a pick-up in buyer inquiries, but there still has not been a big pick- up in approvals and we would need to see that before there was any recovery in prices,” she says.

A better gauge of the market is looking at prices across three-month periods. The Halifax data showed a 5 per cent decline in the three months to the end of January, compared with the final months of 2008. Nationwide recorded an average drop of 4 per cent in the three months to January, a slight improvement on the period ending in December. Indices show that prices have fallen by 12-16 per cent in the past year.

Estate agents say December was a particularly quiet month, which may have skewed the most recent house price data.

Halifax and Nationwide adjust their data to account for the type of sales taking place each month. So, for example, if a higher number of large, more expensive properties were sold in December than January, this should not affect the overall house price data.

“We look at a lot of information – such as what type of property it is, where it is and how many rooms it has – and essentially fix a value on each characteristic to compare properties on a like-for-like basis,” says Ellis.

The lenders also smooth out the data if there has been a disproportionate number
of sales in one area.

But discrepancies between the indices are not uncommon. Each is based on a different sample of sales. In the case of Halifax and Nationwide, the figures are taken from the properties they provide mortgages for, so their indices will not always be in sync.

Estate agents expect further price falls of around 10 per cent this year. Knight Frank forecasts that central London prices will fall 30 per cent from their 2007 peak. Also, while there has been evidence of more buyer inquiries in recent weeks, few of these are yet translating into sales.

Knight Frank believes the number of properties coming to the market will increase as more vendors accept there is not going to be a swift recovery in prices, but that this will take time.

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