I was approached a number of times earlier this week about the BBC news article http://www.bbc.co.uk/news/business-41582755 stating that in real terms house prices in most areas of the country are still lower than a decade ago. My clients were asking for either clarity on the statement, which seemed to undermine recent advice I had given, or reassurance that the figures were incorrect for their property. The BBC’s analysis quoted that in 58% of all the Parliamentary Wards in England, properties are selling for less in 2017 than they were in 2007, after taking inflation into account. The BBC webpage has a search facility where one can enter a postcode to reveal how prices have moved in that particular area over the last 10 years. Needless to say, I couldn’t resist taking a look as I was somewhat perplexed about my client’s concerns – and my interpretation of our local market.
Upon entering a selection of postcodes in north Leeds, where we have plenty of comparable evidence of sales and values over the past 30 years, let alone 10 years, I was presented with the ‘fact’ that prices in these areas had fallen in real terms. The figures varied between a 13% fall in some areas to a 23% fall in other. This seemed to bear no resemblance to our own sales evidence, which shows house prices having increased in all but a very small number of cases since 2007.
LS6 3NX, for example, is St Anne’s Road in Headingley where our office is located. Further along the road from our office the street is predominantly three and four bedroom semis. The webpage shows LS6 3NX as simply being in the Weetwood Ward of Leeds, where the average house price is now £205,000. This is apparently 13% lower in real terms than in 2007. This would indicate the average price in 2007 was £231,650. I couldn’t argue with the latter figure which was only marginally different from our, somewhat more limited, statistics.
Our records show that in 2007, a typical semi-detached house on St Anne’s Road would have sold for around £240,000. Today, that same semi would sell for around £300,000. Unless my math is incorrect I make that £60,000 growth in 10 years, or a 25% capital gain. If I factor in the recession, prices actually fell back to around £220,000 by 2010, therefore in the past 7 years growth has been around 36%. Taking the £240,000 and applying the Consumer Prices Index for inflation in each year since 2007 gives me a value for the same property of £305,000. As this is less than 2% of my £300,000 figure I would suggest house prices have kept up nicely with inflation in this area since 2007. Let’s not forget, market values fell in the recession therefore the recovery to £300,000 or thereabouts has happened since around 2011. This doesn’t seem to concur with the £205,000 shown on the website, nor the fact that even taking inflation into account, house prices have fallen 13% in this area.
In the same Weetwood Ward, large 5 bed semis (2000 sq.ft.+) in Weetwood Avenue were selling in 2007 for just under £400,000. Today, the same semi will realise well over £500,000. This shows 25% growth even disregarding the fall in property prices during the recession. Again, applying the CPI inflation rate to £400,000 shows such a property should be worth around £510,000 today.
I did the same exercise for Richmond Mount in the Headingley Ward (central Headingley down to Hyde Park, Woodhouse and Burley). The Headingley Ward is now showing the average sale price at £183,000, with prices having fallen 23% in real terms since 2007. Our records show that some of the larger terrace houses in Richmond Mount were selling for £320,000 in 2007. Today, two similar houses have changed hands for £340,000 and £350,000. Although no-where near the growth of the Weetwood Ward, these prices are certainly not lower than they were in 2007. Applying the CPI figures to these properties show the values should be over £400,000. Now here is where I could see the BBC’s figures making some sense.
Most of the properties in the Headingley Ward that were changing hands at the peak of the 2006/7 boom market were investment properties. Yields had fallen as low as 5.5% and investors were having money ‘thrown at them’ by the banks (another subject entirely!) and prices were artificially high. Since the recession most banks withdrew from this market and yields rocketed to over 10% (with property values falling inversely as yields rose). There has been a recovery in this market of late, mainly due to higher rents, although yields are now down at an average of 7.5%.
Reading deeper into how the BBC’s research was conducted, one learns that the average property price does not, in fact, include Buy-to-Let properties. These are apparently identified by the mortgage on the property. This is fraught with inaccuracy as many buy-to-let’s are bought with cash and cannot therefore be differentiated. The figures do not take into consideration repossessions. In the case of the Headingley Ward I estimate 80% of all sales are buy-to-let properties, with the majority of student buy-to-lets purchased by landlords via mortgages. Local families in this area tend to be very loyal and move house far less than the national average. I believe the omission of the buy-to-let sales, and repossessions, and the small number of family house sales in the area distorts the data for the Headingley Ward. The figures shown are therefore misleading when taken at face-value.
The Weetwood Ward covers a considerable geographical area; it includes Lawnswood, Tinshill and Ireland Wood, as well as parts of Headingley, Far Headingley and, of course, Weetwood itself. Again, omitting buy-to-let properties will skew the figures quite substantially. We manage dozens of buy-to-let properties in the boundaries of the Weetwood Ward, as do many other estate agents and private landlords. I would estimate 50% of the properties we manage are modest flats or houses purchased as part of our clients’ retirement planning. Back in 2007 the majority of buy-to-let purchases were made using mortgage finance. With interest rates on deposit accounts now so poor, the majority today are bought with cash. In 2007, at the peak of the property boom, properties across all price brackets were selling well in this area. Today, the punitive stamp duty rates have reduced the volume of the more expensive houses being sold whilst the number of smaller, more affordable properties, are selling at a similar rate to 2007. I believe the combination of these factors will reduce the average price compared to 2007 and the data is therefore misleading when taken at face-value.
The article may appear to be good news for first time buyers or those struggling to get on to the housing ladder. In reality, however, it is giving false-hope that a property can be purchased for 13% to 23% less than it was worth in 2007. More significantly, I fear it will act as a deterrent to those who were planning to step onto the housing market to invest in a home whilst interest rates are lower than they have been for over 30 years, fearing property is actually a poor investment in real terms. My analysis of the property market going back to 1950 indicates that property has shown positive growth in any 10-year period since, including the latest 2007 -2017 decade. The same cannot be said for any 5-year period I accept, but bricks and mortar must always be purchased a long-term investment unless you accept you are being speculative.
I am not cynical enough to believe the BBC article was publishing this as disinformation to encourage a down-turn in the property market (which this Government appears to be doing) although I don’t doubt some may be considering this a viable theory. I am more inclined to see this as just another set of statistics that are pushed into the media with no real understanding of how differentiated the property market is, how diverse it is geographically, how the buyers and sellers are influenced by a myriad of external factors and how divisive it can be to subjectively disregard data.