How to Interpret House Price Data

There seem to be so many conflicting areas of property price reports that can make it difficult for us to discuss property value and trends with clients who might have picked up some report that supports their view that their house is worth more than you know it to be.

Firstly, where does the report come from? Different sources have different criteria and timeframes. The timing is critical. For example a figure suggested by the Office for National Statistics will have been curated several weeks or months after publication of data from the Land Registry, which itself is usually several months out of date. Remember, the Land Registry records completed sales, with figures supplied by the seller’s conveyancer up to one month after completion of a sales. That completion is likely to have been one to two months following exchange, and that exchange will probably have been three months after the time the sale was agreed – possibly much longer if there had been a lengthy chain involved. That sale may have been agreed three months after the seller’s estate agent suggested the most appropriate asking price for the house in the market at that time, which is now maybe nine months or even a year before the report was published.

In the interim, imagine how the market might have changed. Interest rates, budgets, elections, inflation and employment figures and wars can all have an immediate impact on market sentiment, possibly quite different to how the market was nine months ago. This is especially important to recognise in a falling market, when dealing with a seller who quotes the latest market report to support their view that their property is worth more than your suggested figure.

So that’s the timing issue. But what about the source itself? Differences between sources can also be misleading. For example, a report from a lender such as the Halifax will usually be based on mortgage approvals, which are pretty up to date and follow about a month after sale agreed. These tend to reflect the lender’s mortgage valuation, which as you know, can, frustratingly, be below the price agreed, which in turn is often below the asking price, which might have even been reduced from a higher initial asking price figure when the property came to market.

Contrast this with Rightmove figures! My understanding is that these are based on the asking price of new-to-market properties, up to half of which will subsequently be withdrawn from the market. So you have aspiring or vanity-driven asking price that are not borne out by sales on the ground. They have not yet been reduced, received offers below asking price, nor moderated by a bank valuation. But there is another element to consider here. The more expensive the property, the less likelihood there is of a mortgage being involved. So a lender’s average house price can be substantially below that of a portal. I just did a search for the most expensive property on Rightmove and found ten properties over £40 million. I doubt the Halifax have many of those. To prove my point, at the time of this recording, Rightmove puts the average asking price at £371,000, whereas the Halifax reports £300,000 and the Land Registry £268,000. I believe some of the extremes will have been moderated to a certain extent, but you get the point.

Do also beware of regional differences. Can you really apply reported figures for national growth to an area where a large employer had just closed down, or opened up? Does a remote rural area of Scotland perform in line with UK averages. Even the word National can be misleading, when HM Land Registry excludes Northern Ireland and Scotland.  Regional centres such as Belfast and Edinburgh also have local portals that may carry more weight than Rightmove.

Then we have the problem of averages. In the UK we gravitate towards a mean average, whereas in the USA they use a median average, which in my view is more relevant. Just to clarify, the mean average, is calculated by adding all the prices together and then dividing this by number of prices. Here’s an example of how a mean average can be misleading. Imagine you have a grandparent and grandchild party at your local village hall. 100 grandparents and 100 children. Let’s say the average age of a grandparent is 70 and the average age of a child is 7. The average age in the room would be 38, but there is not a 38 year-old in sight! They are either 70 or 7. And this number can be skewed further by a weighting of numbers at one end or another. If both grandparents attended for each child, and so there were 200 grandparents in the hall, then the average age goes up to 49. Two children per grandparent and it falls to 28. We have to be very careful using mean averages.

A median average is preferable as it is calculated by listing prices in order, from smallest to largest and finding the middle value, so it is more resistant to extreme values. It wouldn’t work so well with my grandparent example, as there is no middle age. But it would overcome the Rightmove problem to a degree.

We also have those monthly annual house price changes. Well how can it be monthly and annual? Bear in mind we are talking about a rolling annual change in house prices, reported monthly. It’s how much the market moved in the 12m leading up to the reported month – it’s a rolling average.  Let’s say the market was slow over those 12 months, with say 1% total growth in that year. But the market then races ahead at say 3% in one month alone. The reported annualised figure for that month would suggest around 1.6%. That doesn’t sound that impressive until you explain that if it’s “currently” running at 3% per month, this actually equates to a whopping 36% annual increase (if that growth were to be sustained).  So when discussing the latest figures with a client, look at what’s happening in their area right now, rather than simply applying annual changes, because they are always wrong in terms of their immediate effect.

Probably the best predictor of property prices is to look at the trend of the relationship between what’s available and what’s selling. So if for example, the number of sales represented 30% of what is available in January, and 40% of what is available in February, then clearly the market would be strengthening. This is self-correcting and basically shows the balance of supply and demand. Although national trends tend to have a greater influence over buyer and seller motivation, you are the local property expert, so you might want to capture this data for your own location and use it constructively when discussing pricing and marketing with your clients.

As an estate agency trainer, one of my most popular topics is "Persuasive Listing Skills". Understanding how to interpret and communicate house price data correctly is a key to securing saleable instructions.

Hope you’ve found this helpful!