Home—Blog—A warning sign that house prices are about to turn down
Feb 12, 2010, 03:52
Posted byDavid Stevenson
Comments (11)
Beware the Fathom-Zoopla!
If you've not heard of this, it's an auction price index (API) which tracks how the sale prices for properties sold in the auction room compare with prices in the rest of the market.
The key point about the Fathom-Zoopla API is the premium, or discount, obtained by auctioned properties. In good times, auction results tend to be better than the conventional sales route. In less happy climes, they're not – often by a long way. That's often a sign that real underlying demand for property just isn't there.
Below is the API chart from Fathom Consulting. The latest API reading (the red diamond) is 71.9, which means that auction prices were selling at a 28.1% discount in January. This compares with December's 19% and "adds to survey evidence that the balance of power between buyers and sellers in the conventional market has begun to shift", says Fathom's Andrew Brigden.
Meanwhile, here's a chart from Bloomberg of the year-on-year change in the Nationwide house price index over the same timeframe.
Historically, whenever British house prices have been rising by around 10% year-on-year – as they are at the moment – auction values have been at a premium. Clearly, the opposite is happening now. In other words, this latest widening of the auction gap hardly bodes at all well for where UK property prices are heading next.
If you're a regular reader, you won't need reminding what we think. Tuesday's Money Morning was on the same tack.
The API result suggests that property prices could be falling sooner rather than later.
Published in Blog More articles by David Stevenson
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(12 February 2010, 05:02PM) Complain about this comment
David Stevenson's observation of the similarities between the Zoopla and Nationwide charts is a brilliant piece of economist detective work. However the extrapolation of a coming downturn in the property market has to weighed with some non-typical factors. The majority of properties sold at property auction in recent bubble years have gone to either amateur property developers, encouraged by TV get-rich property programs, or to buy-to-let investors. Both types of speculator have largely been driven from the market, due to dearth of mortgage funding and the amateurs making large losses. They tend to make profits in rising markets and losses in falling ones. The absence of these types of buyer has led to falling auction prices. But estate agent sales tend to go primarily to owner occupiers and prices are not falling, rather slowly edging up or stabilizing. A significant difference?
(12 February 2010, 07:16PM) Complain about this comment
So how much will they go down this time? Seems to me that property buyers over the last year have been well and truly duped, cajoled and feared into buying by the estate agents. This time, will there be printing to save the market? Will Merv lose his nerve and switch on the presses again? Will the buyers of GILTS say, enough is enough - no second chances? Will Germany come to our rescue? If not, WHO will come to our rescue? Is British debt unsustainable to the point of avalanche? I dont understand why the BOE just doesnt let all markets just correct themselves - and why not. Probably because of elections - We need the deleveraging medicine - otherwise we are finished as a country.
(13 February 2010, 12:50PM) Complain about this comment
Underneath all of the depression in all markets at the moment is the solid fact that Britain no longer makes a profit as a country. Since we do not have much in the way of minerals, and our manufacturing base has been allowed to die, all we have been surviving on for the last 20 years is the commission on buying and selling financials to each other. Idiot Brown has squandered all of the government's share, and then maxed out the country's credit card. Unless the next government smells the coffee, which I doubt, and encourages industry to to add value to the economy, house prices will be the leat important factors in our lives. So, lets stop fiddling and extinguish Rome before it's too late!
(13 February 2010, 01:32PM) Complain about this comment
I agree with both Amar and Chris. the economics seems to me to be obvious. Property prices are far too high - from both economic and social perspectives. Nevertheless, despite the dire predictions of Bill Ferguson, John Stepek, Merryn Somerset Webb et al, prices have continued to rise. I think we are due the kind of medecine the Irish have voluntarily submitted to - even though the Irish Finance Minister has now exempted top civil servants from the pain. Public sector salaries and pensions are totally unsustainable, particularly at the top end. We are living in cloud cuckoo land and reality will impinge with a vengeance come the election. It seems to me that for the past two years, the government has supported the very elements of our economy that desperately need pruning, thereby only making the fall, when it comes, much worse.
(13 February 2010, 02:17PM) Complain about this comment
A house is a home to live in, enjoy and raise a family. At least this is what we were raised to believe. The advent of buy-to-let has led to a ballooning of values, since its enactment, on a scale we have never seen before. Therefore, the fall is going to be bigger than ever. Mervyn King has been warning the public for a few years about a crash, guess what? the general public are still buying property to let out! In E14 the bonus bonanza and Japanese/Chinese businessmen are the main buyers with cash! I echo Merryns view about this subject, what happens when the cash rich have made their purchase? Bye bye the majority of the landlord brigade.
(13 February 2010, 08:58PM) Complain about this comment
The majority of houses in the UK are homes, and every ten years the property market peaks and falls back. So whats new here?When prices are in a state of flux, as at present, most people sit tight and wait to see how it all shakes out. So it is not surprising that auction prices (representing forced sales) are unusually low, whilst open market prices (representing the seller who can wait for the best price) are higher than might be expected.House prices throughout the UK will not really rise until they start to look cheap to buyers. Give it five years.The buyer outside the Capital should be perfectly safe buying in the present market, even if prices do fall back somewhat, providing they are not buying to make a short term profit, but rather buying a home for their family
(15 February 2010, 01:55PM) Complain about this comment
I am no economics expert, but it seems to me people are more desperate than ever to own there own home. they are willing to mortgage for longer, borrow more, stretch themselves more. If you combine this with a shortage of housing it explains why prices relentlessly rise each year. I understand the tough headwind facing anyone buying property , but it seems to be out paced by individual greed. There is also going to be huge pent up demand for house buying when the economy does improve, and lending is relaxed. This will push prices up even higher. Or at least maintain existing prices.
(17 February 2010, 02:41PM) Complain about this comment
(right to paint my walls) = (market risk) x (six figure debt to self interested bank)My landlady is happy to compromise on the colour and pay for the decorator. Then there's the new washing machine, dishwasher repair, new shower... all for less than the mortgage payments I would have to find.I wish I could rent a car on the same basis.
(17 February 2010, 03:44PM) Complain about this comment
That's all well and lovely for you noisie. My equation would be (absolutely no security of tenure whatseoever)+(hassle of moving every 18 months at whim of absentee landlord who thinks they can sell for a pile of money)x(cooker that doesn't work)x(rising damp that won't get fixed)x(uninterested yahoos at agent's office who do nothing)=( much better off buying)
(19 February 2010, 01:28PM) Complain about this comment
Noisie, have a look at www.streetcar.comI rent my house AND my car.
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