The Times | December 28, 2005
House price rally defies the huffers and puffers
BY GABRIEL ROZENBERG, ECONOMICS REPORTER
PREDICTIONS of a property slowdown have faded away, with analysts almost united today in declaring house prices to be on the rise again.
Gloomy forecasts at the beginning of 2005 have gradually been reversed during the year with the last major price monitor coming into line by reporting an above inflation rise.
A report today from Hometrack claims that house prices are rising for the first time in 18 months, with prices 0.1 per cent higher in December.
The significance of the announcement is that Hometrack has been the most gloomy of all the house price monitors over the past year. With todays report, all the indicators are pointing in the same direction: up.
As the year draws to a close, it provides an opportunity to paint a picture of the path of house price movements.
Figures from the Nationwide and Halifax, the mortgage lenders whose reports are seen as among the most authoritative, show that despite the doom and gloom of a year ago, prices have actually risen above inflation over the past year – though admittedly not by a great deal.
Nationwide sees property values increasing by 2.4 per cent in the 12 months to November, after rising in every month bar one this year. Halifax is more bullish, recording a 4.5 per cent rise in the year to November, after a year in which falls recorded early in the year have been counterbalanced by a buoyant performance since August.
Of the two surveys, Halifax has about a 20 per cent market share, and Nationwide has a 10 per cent share, and each has its own system for adjusting for differences in location and property characteristics.
But both are roughly comparable as they are wellestablished studies that measure prices at the mortgage approvals stage. Hometrack, a website, measures prices at the same stage.
Rightmove, another website, measures prices at around three months earlier in the process – at the point at which would-be buyers put down their asking prices. It therefore claims to be the first study to spot trends, although it may be less accurate as a result. Rightmove says that asking prices rose by 3.4 per cent this year, in line with the consensus.
A different approach is taken by the Royal Institution of Chartered Surveyors (RICS), which asks its members whether house prices have risen or fallen and constructs an index based on the balance between the two.
This has also been more gloomy than the standard surveys. Those who expected house prices to plummet argued that the RICS painted a more accurate picture as it picked up the prices of houses that were unsold as well as those that were sold, which could well be skewed towards more expensive homes as first-time buyers held back.
The Land Registry publishes authoritative quarterly reports which average all the final selling prices recorded in its books. Its data is generally considered to lag behind the commercial studies by around two to three months.
The Land Registry figures show that in the first half of 2005 prices in England and Wales were roughly flat, before rising by a healthy 5.2 per cent in the third quarter.
The overall picture has now become fairly clear. In 2004, the house price boom finally came to an end: but what replaced it was 12 months in which prices stagnated rather than slumped. And by the end of 2005 the market was starting to look rather more healthy, although no one was predicting a return to rapidly rising prices in 2006.
The clearest sign of the change has come from Roger Bootle, whose consultancy Capital Economics has been one of the Citys most vocal prophets of a house price slump.
At the start of this year Mr Bootle wrote in a report for Deloitte: “We continue to expect house prices to drop by a total of 20 per cent or so over the next two years, but a bigger fall cannot be ruled out.”
But last week, Capital Economics announced a “forecast change”: noting the lack of a sustained fall in house prices in 2005, they now predict house prices to drop by just 2 per cent in both 2006 and 2007.
A drop of 5 per cent in prices in the next two years would be unwelcome, but would not have a deep impact. This is the way the great house price crash that never was has ended: not with a bang but a whimper.