Is the Property Market Going Up or Down?


So one newspaper says the property prices are dropping and another says they are on the increase. What's really going on? I'll explain here how you can get conflicting messages and they can both be right. At the end I'll fill you in on what you can do to get the real picture!

OK, different stories - "property market is going up" and "property market is going down". How can they both be right.

Different data sources tell different stories

The most common answer is that they are both using different data. So one magazine might use Land Registry figures and claim prices are moving down. These reflect properties which have actually been sold but the purchase procedure can take 12 weeks and Land Registry only releases figures a month in arrears so this data is at least 4 months old. It reflects what people were offering 4 months ago, not right now.

Its very real information, its very factual but it is very old. Any person or media outlet using this data as the basis of their story is reporting facts - just facts from a while back. The market might have been moving down back then but it doesn't mean it is now.

Now another magazine might write an article based on data from, say, Right Move. But prices on Right Move are asking prices, not prices achieved. If sellers have become over confident in the market they might start listing their properties at values that won't actually be achievable but it will give the illusion that prices are going up.

This kind of data is real time but its not real. Its not what the properties are actually selling for.

This double reporting conflicting stories is the normal state of affairs every year, especially in the Spring. Estate agents can see lots of new buyers coming onto the market and so they increase valuations. This makes Portals like Right Move report prices are increasing. At the same time Land Registry is reporting on sales that were agreed at the end of the previous year. Usually a quiet time when property prices are pretty suppressed, people have got other things going on in December like buying a Turkey or trying to persuade other people not to buy Turkeys.

Looking too closely at an area

If you look at a graph of property prices in England and Wales going back 20 years its a kind of nice smooth upward graph. A couple of small dips here and there but generally smooth.

If you look at a graph of property prices for your neighbourhood - say SW4 - where prices are show mongh by month its all over the shop. That's because there are fewer transactions in the area and this makes the graph noisy. Small amounts of data make graphs like this unreliable sources of information but why let that get in the way of a good news story?

If the prices in SW4 went down 20% in March but went up 10% in April well that 10% rise is enough to run a story like "Prices rise 10% in new property hot spot". You know the kind of thing.

Media motivation

So basically whatever story you want when it comes to the property market, you can find it. You want to find someone who made a fortune on their bricks and mortar in the last 12 months, you can find them. You want to find someone whose home lost 30% of its value this year, you can find them.

Want to find an 'expert' who claims property prices are about to fall through the floor, you'll find them. Want an 'expert' who thinks boom times are ahead, you'll find them.

Which means we have to ask ourselves what the motivation is for the story. Very often its just "news about property prices sells". Write a story about how prices are going up and lots of home owners will want to read it to feel good about themselves while house hunters will want to read it and get depressed. Write a story about how prices are going down and home owners will want to read it and worry while gloom sayers will want to quote you as providing the long awaited proof that you'll soon be able to buy a home for a tenner.

There might be some political motivation going on as well. Say there's a general election coming up and a media outlet supports the Conservatives. They might wheel out an 'expert' who will predict property prices will decrease of the Conservatives don't win. Most Conservative voters are home owners who wouldn't want their asset depreciating so hopefully its helped make sure they behave themselves.

So how do you know if property prices are going up or down?

Unless you are heavily involved in the property market in a particular area (like an Estate Agent is) you don't. And if you ask an Estate Agent they'll normally just talk the market up anyway so no joy there.

Personally I ignore all the chatter. Its just headline grabbing stuff or click bait. What does it matter if UK property prices went up 10% year on year if I'm buying in Middlesbrough where they haven't budged or they're falling?

I see property as a five to ten year thing and if you are buying for yourself that might well be the kind of time, or longer, that you might own it for. This is especially true if the purpose of your purchase is as an investment. Just because the market went up 10% last year don't rely on the property you want to buy being worth 10% more next year.

OK - I purchased a property which in the previous year had not increased in value much. Over the next 12 months it nearly doubled in value. I was lucky. I can pretend it was because I was a smart investor. I can build a back story after the event - "Yes, I could see the area was undervalued and had huge potential" type of blah.

Truth is I could see the area had huge potential, more on how to do that is in my book, I just didn't know when other than "in the next few years".

A different property I bought, where I really expected a dramatic increase in value, went nowhere for 5 years but was worth twice as much after a decade.

You can be as smart as you like. You can look at mortgage company figures where they tell you the average mortgage they dolled out last month. Go to Land Registry and dig around. Make a giant spreadsheet using prices from Right Move. Nothing is going to guarantee you that the price of the property you are buying will go up or down in the short term.

And in the long term? Well that's a matter of supply and demand. If supply is restricted and demand increases prices will go up. This is generally true of inner cities where living close to the center is desirable. London, Manchester, etc.

But if supply can be increased that will mute price rises.

Every day I get emails telling me about some off plan opportunity in Liverpool or Newcastle or wherever. But I know these cities have plenty of brown field sites available that could be turned into housing.

Stoke on Trent was a prime example. Prices up to 2008 were driven up by this kind of "Hey, it'll soon be a 5 minute train trip from Stokey to London so prices here will rocket, buy now" type chat. Prices collapsed with the Credit Crises because there was actually plenty of supply and the demand that had been invented disappeared.

You can build a motorway spur into Middlesbrough, there are so many empty properties there, so much supply, that even if you can get demand to increase a bit any property price increase might be near impossible to see.

So - are property prices going up or down? Depends on your area, depends on supply, depends on demand. Generally, in the UK over the long term, prices are on the up but that doesn't make it true for your town. Anyone who claims to have a definitive answer is full of ... well you know what.

To understand more about the property market see these two chapters in How to Really Buy a Property: Is a Property Market Overvalued and Property Bubbles and Market Values.

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How to Really Buy a Property

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Chapter 13: Your Own Homework
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