The Real Nationwide House Price Index extends run of monthly increases to six
Posted on 28 August 2009 by
Nationwide’s “Real” House price Index increased by 0.9% in August, down from the 1.6% recorded in each of the previous two months, but still well into positive territory. The seasonally adjusted figure for August was + 1.6%, compared to the upwardly revised seasonally adjusted figure of + 1.4% for July. This is the first month since January that the more widely reported seasonally adjusted figure has been lower than the real one, as a result of which the cumulative difference between these two figures for the first 8 months of this year has fallen to 1.5% (see table below).
Both figures must come in line at the end of any 12 month period but based on past form it is likely that the seasonally adjusted figure next month will show little change from the real figure. That means that for the last 3 months of the year either the seasonally adjusted figures will have to total 1.5% more than the real figures or the difference will be made up by the persistent retrospective adjustments typical of seasonally adjusted figures and which disguise the monthly movements even more as few people look at the retrospective adjustments. In reality I expect this 1.5% differential to be made up by a mixture of these two factors.
As an indication of the impact of retrospective adjustments to the seasonal figures, last month the difference between the real and seasonally adjusted figures for 2009 to date was 2.5% and this month it is reduced to 1.5%, despite the difference between the two figures for the month being only 0.7%. Unlike the seasonally adjusted figures, the real figures are based on fact and so don’t need to be retrospectively adjusted!
The real house price index has now increased for six consecutive months since the market bottomed out in February and this ought to be evidence enough for even the biggest bears of the housing market to accept it has turned but some still think this is a rally in a bear market. What I think they fail to understand is how important confidence is in the housing market and the longer prices keep rising the more confidence returns.
It is easy to cite reasons why the market shouldn’t be rising – increasing unemployment and the fear of it, lack of mortgage finance and the consequent requirement for big deposits being two of the most common. These are of course serious problems for the market and will be for some time. But the fact is that house prices have risen despite all these issues having been relevant since the market bottomed out in February.
The other argument which usually gets trotted out is that prices are only rising because there is not mush stock on the market and that sellers who have been holding back will rush to sell in the autumn because prices have risen. I don’t buy either of those arguments. There wasn’t much stock on the market last year but prices still fell very rapidly. Why? Because there were even fewer buyers than sellers. Now enough buyers have come in to reverse that position and consequently prices are rising. I am not an economist but I do understand the impact of supply and demand, whereas some of the economists who are still bears seem to prefer to ignore it when it doesn’t suit their argument.
Some people who have been unable to sell, or choose not to, at the lower prices will undoubtedly put their property on the market as prices rise but in my view most of the opportunist sellers the bears seem to think will come out in force in the autumn are more likely to sit on their property until there are signs that prices are beginning to stabilise.
Those who put their property on the market are more likely to be people who want to move but haven’t been able to because there was not enough equity in their property to cover the costs of moving and provide the deposit for their new property. As most of these people will be buying as well as selling the overall impact on prices will be modest and will depend on whether most are trading up or down. The credit crunch means that more than normal are likely to be trading down but the majority are still likely to be trading up.
As prices increase more people will be in a position to move and the efficiency of the market will improve as a result of the additional liquidity resulting from the increased number of transactions. This should make it easier to put chains together.
The table at the end of this post is self explanatory and, based on the Nationwide House Price Index, I now expect house prices to record an increase of 6% in 2009, rather than falling 5% as I predicted at the end of last year.
Interest rates will be a key factor influencing how long house prices keep rising and following the Bank of England’s announcement of a £50bn extension to the Quantitative Easing programme and the Quarterly Inflation Report the market has had to reassess the future path of interest rates. Despite the serious problems which will be caused by the probable slow recovery of the economy the fact that it is likely to result in interest rates staying low for longer is a plus for the housing market.
The main risk to interest rates is that the failure of Gordon Brown to accumulate surpluses following the benign economy he inherited means that the unprecedented deficits which the Government now has to run will cause the overseas investors who finance our deficit to demand higher rates. However, the knowledge that within 9 months we are likely to have a new Government committed to dealing with the huge deficit significantly mitigates this risk.
The Nationwide House Price Index – The Real Figures and the Seasonally Adjusted Ones | |||||
Month | Average price (£) | Real Change | Seasonally Adjusted Change | Difference | |
2008 | Jan | 180,473 | - 0.9% | - 0.6% | + 0.3% |
| Feb | 179,358 | - 0.6% | - 0.9% | - 0.3% |
| Mar | 179,110 | - 0.1% | - 1.2% | - 1.1% |
| Apr | 178,555 | - 0.3% | - 1.2% | - 0.9% |
| May | 173,583 | - 2.8% | - 3.0% | + 0.2% |
| Jun | 172,415 | - 0.7% | - 1.3% | - 0.6% |
| Jul | 169,316 | - 1.8% | - 2.0% | |
| Aug | 164,654 | - 2.8% | - 2.0% | + 0.8% |
| Sept | 161,797 | - 1.7% | - 1.8% | - 0.1% |
| Oct | 158,872 | - 1.8% | - 1.4% | + 0.4% |
| Nov | 158,442 | - 0.3% | - 0.2% | + 0.1% |
| Dec | 153,048 | - 3.4% | - 2.6% | + 0.8% |
2009 | Jan | 150,501 | - 1.7% | - 1.1% | + 0.6% |
| Feb | 147,746 | - 1.8% | - 1.8% | nil |
| Mar | 150,946 | + 2.2% | + 1.1% | - 1.1% |
| Apr | 151,861 | + 0.6% | - 0.2% | - 0.8% |
| May | 154,016 | + 1.4% | + 1.2% | - 0.2% |
| Jun | 156,442 | + 1.6% | + 1.0% | - 0.6% |
| Jul | 158,871 | + 1.6% | + 1.4% | - 0.2% |
| Aug | 160,224 | + 0.9% | + 1.6% | + 0.7% |
| |||||
Price Changes | ||
Over | Real Changes | Seasonally adjusted changes |
The last year | - 2.7% | - 2.7% |
2009 | + 4.7% | + 3.2% |
The last 6 months | + 8.4% | + 6.2% |
The last 3 months | + 4.0% | + 4.0% |
The last month | + 0.9% | + 1.6% |
Categories: Property market, Mortgages, House and home, Interest rates
The blog postings on this site solely reflect the personal views of the authors and do not neccessarily represent the views, positions, strategies or opinions of Charcol Limited. All comments are made in good faith, and neither Charcol Limited nor Ray Boulger will accept liability for them.
Post a Comment
Please keep your comments relevant. Charcol reserves the right to edit or delete comments.